Federal Reserve Powell's - 'Here I Go Again'

As the Fed Chair decides to Walk Alone with Interest Rates Higher for Longer

In the unfolding economic saga of 2024, Fed Chairman Jerome Powell takes center stage, orchestrating a performance that harmonizes with the intricacies of the financial markets. Price-to-Earnings (P/E) ratios soar to historic heights around 20, while interest rates are between 4% to 5%. Meanwhile, the overall market earnings per share takes a drastic plunge to -11%, for Q4 creating a dissonant economic landscape where the Fed chair and investors alike hear the familiar refrain, "Here we go again."

Powell's Overture: Navigating the Uncharted Interest Rate Road

In a daring move akin to a seasoned drifter, Powell deviates from market expectations by announcing higher interest rates for longer. Investors now grapple with the challenge of justifying inflated share prices, particularly in the realm of tech AI stocks, as these companies struggle to meet earnings growth per share expectations, raising questions about the sustainability of current valuations.

Housing Market Conundrum: A Continuing Journey with Mortgage Woes

The housing market undergoes its own lonely street of dreams, as mortgage demand reaches unprecedented lows, prompting a decline in prices to allure buyers. However, a paradox emerges as monthly payments skyrocket to an unaffordable price with rates at 7%, presenting financial challenges for both buyers and sellers. In the background, the timeless chorus of Whitesnake's "Here I go again” resonates with the real estate market in regards to a possible real estate price declines like past recessions.

Powell's Tactical Move: The Unfulfilled Promise of a "Soft Landing"

Echoing in the backdrop, Whitesnake's voice accompanies Powell's insistence on waiting for several 2% inflation reports before considering any adjustments to lowering rates, while many are holding onto the hope of a "soft landing." However, this hope remains elusive, with core inflation stubbornly above 2%, ranging from 3% to 3.5% depending on the inflation index used. Today, Powell walked down the only road he knows, mirroring the footsteps of past Fed chairs, suggest that “soft landing, has not been achieved, and that we still have a ways to go”- Jerome Powell.

Market Response: Tech and AI Stocks Face Numerical Crunch Amid Uncertainty

Powell's decisions reverberate through the markets, significantly impacting high-valued technology and AI stocks to the downside. Investors face a data-driven reality with declines in these sectors, fueled by Powell's divergence from the desired path of lower interest rates as soon as March and as many as six cuts. The fear of over-tightening to eliminate inflation sparks concerns of a potential tech bubble today, with investors here the guitar chords of Whitesnake's "Here we go again!"

In Summary: A Quantitative Prelude to Uncertainty, Accompanied by Whitesnake

In today's monetary landscape, where interest rates are controlled by the Federal Reserve and not the free market, Powell's decisions shape the road for 2024 against the backdrop of Whitesnake's timeless melody. The tug of war between the investors desire for lower interest rates as soon as March and the Fed's commitment to combat inflation unfolds through economic data and market reactions. As we walk along the lonely street of dreams, investors and markets face the fading euphoria of lower rates sooner, while Powell walks alone, both are acknowledging, "Here we go again," with no clear victory in sight for neither.