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Friday, March 29, 2024

Big Ben’s Stock Market Valentine!

As expected Chair Man (of the Fed) came through today and gave the market just the shove we needed to hit some new highs!

He stuck to our prepared speech, which I posted right here last nightHere’s what I said yesterday:

"Uncle Ben knows what to say:  The economy is strong and will remain strong because of a new global paradigm and we must embrace the free markets to keep the flow of capital around the world.  There is no reason to loosen policy because rates are still historically low and the excess liquidity has formed a commodity bubble that is already losing steam and may achieve a soft landing of its own."

Here’s what Ben said today :

"As we anticipated in our July report, the U.S. economy appears to be making a transition from the rapid rate of expansion experienced over the preceding several years to a more sustainable average pace of growth. The principal source of the ongoing moderation has been a substantial cooling in the housing market, which has led to a marked slowdown in the pace of residential construction. However, the weakness in housing market activity and the slower appreciation of house prices do not seem to have spilled over to any significant extent to other sectors of the economy. Consumer spending has continued to expand at a solid rate, and the demand for labor has remained strong. On average, about 165,000 jobs per month have been added to nonfarm payrolls over the past six months, and the unemployment rate, at 4.6% in January, remains low."

(The economy is strong and will remain strong)

"Outside the United States, economic activity in our major trading partners has continued to grow briskly. The strength of demand abroad helped spur a robust expansion in U.S. real exports, which grew about 9% last year. The pattern of real U.S imports was somewhat uneven, partly because of fluctuations in oil imports over the course of the year. On balance, import growth slowed in 2006, to 3%. Economic growth abroad should support further steady growth in U.S. exports this year."

(because of a new global paradigm)

"In the five policy meetings since the July report, the Federal Open Market Committee (FOMC) has maintained the federal funds rate at 5-1/4%. So far, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing of core inflation. However, in the statement accompanying last month’s policy decision, the FOMC again indicated that its predominant policy concern is the risk that inflation will fail to ease as expected and that it is prepared to take action to address inflation risks if developments warrant."

(There is no reason to loosen policy because rates are still historically low)

As for inflation, Mr. Bernanke said the "waning" of temporary factors like energy prices and rents "will probably help foster a continued edging down of core inflation." Productivity trends, meanwhile, "appear favorable," he said.  "The paths for prices of energy and other commodities embedded in futures markets suggest that the impetus to core inflation from these influences will diminish further," the Fed said.

"In addition, the outsized increases in shelter costs that boosted core inflation last year are not expected to persist," the Fed said. And while unit labor costs have been rising, the Fed said the "average markup of prices over such costs is high by historical standards.  That relatively high markup suggests further increases in costs could be absorbed, at least to some extent, by a narrowing of firms’ profit margins rather than by passing on the costs in the form of higher consumer prices," the Chairman added.

(the excess liquidity has formed a commodity bubble that is already losing steam and may achieve a soft landing of its own)

The only thing we discussed that Ben didn’t get to was embracing the free markets to keep the flow of global capital going, but I suppose he felt he was facing a hostile audience with all the protectionist talk on the Hill lately.  Instead, the Monetary Policy Report he handed in today made 25 mentions of foreign capital and their effect on our economy complete with lots of graphs and charts!

Better to show them than tell them – good call Ben!

 

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