One of the key takeaways from Wednesday’s press conference after the FOMC meeting is the Fed’s strong belief that a recession can be avoided.
That optimism fueled a risk-on mood in markets on Thursday, with the S&P 500 hitting new all-time highs and the 10-year Treasury yield rising 3.5 basis points.
The latest economic data also showed resilience. Industrial production rose in August and the Fed’s regional bank manufacturing surveys in early September provided encouraging signs. Although August retail sales showed some mixed data, they did not signal an imminent recession, while home starts showed a rebound last month.
However, strategists at BCA Research remain cautious, saying they are not yet ready to abandon their call for a US recession in the 12-month horizon. The investment research firm cited three key factors.
First, the BCA highlights the labor market and its impact on consumer spending. The house expects continued weakness in labor demand “to continue to put downward pressure on wage growth and dampen the push from the main driver of household spending, at the same time as other headwinds favoring consumption fade.”
Second, strategists argue that aggressive rate cuts will not significantly change their recession outlook. They note that monetary policy operates with a time lag, meaning that current conditions reflect past tightening, and the effects of recent cuts may materialize only when it is too late to prevent a recession.
Third, despite a 50 basis point rate cut this week, monetary policy remains tight, with the Fed funds rate still above the Fed’s own estimate of the neutral rate.
While acknowledging that the chances of a recession in 2024 have receded and stocks could rise in the near term as investors anticipate a soft landing, strategists warn that further gains could leave stocks more exposed to downside risks.
“Consequently, we are reluctant to chase the stock higher and remain underinvested,” they conclude.
At Bro In Finance, we are committed to helping traders navigate the complexities of the forex market. Our in-depth analysis, expert insights, and advanced tools empower you to make informed decisions and achieve your trading goals. Whether you’re a beginner or an experienced trader, Bro In Finance is your trusted partner in mastering the forex market. Visit our website for more trading tips and strategies to enhance your trading experience.
Check out our on Best Forex Brokers to know more about this topic
Check out the most crucial steps that you need to take when choosing your forex broker
Have you heard about an amazing Broker Platform called “AVATRADE“? We at Bro In Finance do recommend this amazing broker.
Check out here to figure out the best funded trader program: Which Funded Challenge is Best
Reference;
