Fed remains 'between a rock and a hard place' after key PCE data, says G Squared's Victoria Greene

If you’re going to get your thoughts on this though, because you are seeing, you are seeing industrial stocks and material stocks and some of these cyclical parts of the market trade at record highs right now. And and part of the reason you’re seeing that is because you do have this fiscal spending that is starting to hit the economy right now too on infrastructure, on chips, on you know the inflation reduction act etcetera. And that’s a secular growth story in of itself. How does that factor in here? Because quite frankly, I got to think Fed officials are, even though it’s not their lane, they’re watching what’s happening on the fiscal side and they’re in the impact it’s going to have on inflation here and it should, it should certainly help. And we’ve seen that that government spending, government employment has been a large part of these gains here. And it does look set to continue with some of these policies starting to pay out significant chunks of capital to to companies. And I think you’re also seeing increases in productivity. You’re seeing margins increase, you’re seeing earnings expectations continuing to rise. All of these things are good for the market and good for the economy. Technically the Fed isn’t supposed to care about that unless there’s going to be a liquidity concern or a lock up or some sort of instability. But we all know that they can’t not help but watch the markets and understand what the effects they have. But generally speaking, it would be a surprise at this point to not have a soft landing or quite frankly a non recession because of the way these companies are trading. Look at oil prices have continued to increase even with China continuing to be slow imports, they’re very, very slow. We’re seeing that that market is still tight because they’re seeing consumption. We’re we’re expecting a very strong driving season this summer. We’re expecting travel to be strong. Expectations are extremely high for economic growth. I know key one GDP should come down from the blockbuster Q4, but at the same point we are in a period of economic growth and I think the Fed has to kind of take a little bit of an easy breath on that because there are some supports and stability and that’s what the Fed wants is the stability. I think it’s a valid point that they are fighting a bit of a credibility battle. You know are they going to sacrifice everything to get to that 2% or you know and and and that I think is going to be the key point to them of of can they remain credible. Are people going to believe when they say what they say in their dot plots what they’re saying in their commentary or are we just going to say well they’re going to be too late or too early and they’re probably going to get it wrong. Because they’re like I said they’re in between a rock and a hard place. Either you potentially sacrifice economic growth and labor for the last mile of inflation or you learn to live with inflation being a little high and sticky. I think the the death knell is going to be if we see continued re acceleration in goods and an actual acceleration like we saw in the 70s and 80s and that’s the only thing that really concerns me. I can deal with sticky. I think we can deal it was sticky and this last mile might just get fudged over. But if it’s not sticky and it does actually accelerate, that’s the point then that all of these projections go out the window because it it’s, it’s seventies 80s again. OK. So I’m just going to go around the horn here, get final thoughts from everybody. Steve, it sounded like you had a reaction there. No, I’m. I’m just interested in in Powell this afternoon. I think we’re going to be looking. We’re going to be probably upgrading GDP when we do our rapid update early next week. We’re looking for 198,000 on jobs. The economy is cooking along and and I, you know I love when the Fed is the center of attention. I I do TVA lot but I’m I’m happy for a world, Morgan where the Fed matters less and earnings and growth and jobs matter more. I think that’s a better world to live in. Rather than talking about equilibrium neutral, inflation adjusted rates, I’d much rather talk about growth and jobs and and and and wages and and and I’m really in Rick’s camp because I know the world he wants to see is 1 where the Fed dials back and has less influence on this world. I have really enjoyed watching the market make the decisions it’s making. I don’t think they’re not in tune with what the Fed is doing, but it seems to be dancing a bit more to its own music right now. And I think that’s a better world. OK, Diane, your thoughts on that? Are we getting closer to that place where the Fed is going to perhaps matter less? Gosh, I hope so, and I agree with Steve on that. But on the market side of it, I think we also have to issue the issue about Gen. AI. And I think that is important. We tend to see technological innovations trigger bubbles and that actually helps you build out the infrastructure to get the full adoption over time. But we also know a lot of this market strength is generated by a few key players in the market and that is something that also the Fed is watching. Does that make for instability in the market as well? And so I’d like to have the Fed completely in the background like watching paint dry as they once said about quantitative the roll off of the balance sheet. OK, Victoria, how you position yourself ahead of Monday. And when we have given the fact we have seen this market rally broaden out at least in recent weeks here, Does that continue? Yeah, absolutely. It was great to see energy lead last week. We seen energy materials utilities, you know they were all much stronger in March and we did see the technology leadership flag which I think is fantastic. I’m not saying I’m rooting for them to roll over, but having other leaders in there really makes and gives more and more credence to this bull market story which it is absolutely a very strong bull market and still in early to mid innings. So I think people can’t underestimate the strength of this bull. I think as long as the Fed does not have to come out with something out of left field, some sort of 180 policy shift, as long as we can keep kind of status quo, then the market should be able to run and the Fed can be murmuring in the background and we focus more on earnings. I mean that starts up what two weeks we really get into the meat and starting with with financials and and look we have stability in banking, Regional banking hasn’t been an issue, commercial real estate hasn’t been a problem necessarily. We have all of these little potential fears lurking from is this going to throw us off? Is the masses deficit going to throw us off? You know all of these potential problems For me, I don’t see them as actual immediate problems. I think they will continue to murmur in the background. The biggest risk I would say would be some sort of policy change announcement from the Fed that the market’s not expecting. If we can get status quo focus should be on earnings, which is where it should be in my opinion. OK, Rick, or maybe I should call you Mr. Market after this conversation today. Last word, I certainly hope that I’m going to shift back to the Fed. I certainly hope QT stays alive and well because my fear is I would like a good outcome, Steve. But if we should ever have to fire up QE when the Fed’s balance sheets this significantly higher than it’s been in the past, debt and supply and issuance is going to be the primary factor in determining more of where long rates go. So we want to be very cognizant of that. And if I had to make a guess as to how the state effects Monday, I would say that the Fed’s going to have its cake and eat it too. I look for some curve steepening which means short maturities like 2 year. Note yields will be well behaved but I think long end will be a little more sticky.