After a week of economic data, US markets traded neutral on Friday. Investors saw two above-expected inflation readings. Both markets and industry veterans predict the Fed's first rate drop in June.
US markets fell Friday as investors assessed Federal Reserve policy after two hotter-than-expected inflation data this week.
The Bureau of Labor Statistics said on Tuesday that February consumer prices rose 3.2% year-over-year, exceeding consensus expectations of 3.1%. On Thursday, the producer price index rose 0.6%, exceeding the Dow Jones projection of 0.3%.
The numbers cloud the "immaculate disinflation" goal that has dominated markets for months. Bloomberg economists polled from March 8-13 expect the Fed to decrease rates by 25 basis points in June, as do futures markets.
"We are expecting the dot plot to continue to show that the median FOMC participant expects 75 bps rate cuts this year," Bloomberg senior US economist Anna Wong said. "In the SEP, the median forecast for neutral rate likely edges higher as at least five FOMC participants had flagged the possibility of higher neutral rate during the inter-meeting period."
The same survey found that 17% of economists forecast a US recession in 12 months and 63% a gentle landing. Twenty-one percent expect a harsh landing and no recession.
Equity investors have mostly ignored economic concerns and focused on monetary policy easing. The benchmark index rose 8.6% year-to-date.
"The S&P 500 continues to print new highs as earnings and economic growth point more toward a soft-landing scenario than a recession," said LPL Financial chief technical strategist Adam Turnquist. "While inflation data remains more volatile than the market desires, investors appear complacent with the notion of rate cuts being on the horizon, and less concerned over the exact timing."
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