The March retail sales report surprised to the upside, coming in at 0.7% from the month prior versus the anticipated 0.4% gain. Roth MKM’s Chief Economist and Macro Strategist Michael Darda joins the Morning Brief to discuss the implications of this report for the Federal Reserve’s rate cut plans, calling it a “body blow to expectations.”
Darda notes that earlier this year, markets had priced in expectations for six to seven rate cuts. However, that outlook has now dwindled to less than two rate cuts. With “several months of hot inflation readings” combined with the better-than-expected retail sales data, in Darda’s view, this leaves the Fed with little choice but “pushing back in terms of when they would likely start to entertain any kind of a notion of easing monetary policy.”
Darda believes rate cuts could materialize later in 2024. However, he expects monetary policy to only begin easing once “it’s much more obvious that the economy is losing steam.” Darda warned of two potential “tail risks”: the Fed waiting too long and causing “issues with earnings,” or easing too soon and risking “a reacceleration, high inflation hazard.” He characterizes the Fed’s rate cut timing as a “balancing act.”
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