The Fed’s Dilemma: Balancing Inflation and Economic Projections

And now let's get to the big story breakdown.

Wall Street rebounded as the trading week kicked off, but we are looking at US stock futures and the red on the heels of the latest economic data, and geopolitics dragged the stock averages lower last week and pushed oil prices well above $70 a barrel.

G7 leaders gathering in Canada as the conflict between Israel and Iran are being closely monitored.

Meanwhile, the Fed. does kick off their two day meeting today with the rate announcement coming out tomorrow afternoon.

Joining me today is Michael Ryanking, senior market strategist at the New York Stock Exchange.

Michael, good morning.

Thank you so much for joining me.

Good morning.

Thanks for having me back.

Well, first and foremost, we are looking at stock features in the red on this Tuesday morning, and we are focusing on geopolitics with the president back in Washington.

So what do you make of where markets are right now?

Yeah, so I mean in general, right outside of oil we've seen a pretty muted response within equity markets since we've seen the tensions in the Middle East really begin to ramp up at the end of last week.

I think markets have in many ways like become a little bit desensitized, something that we had talked about before coming on, you know, desensitized to what we've seen. in these conflicts over the last couple of years because there hasn't been a geopolitical event since Ukraine that's had a really kind of a longer term impact on on markets.

Now this time is a little bit different because it does, right, this is a clear escalation from what we saw at the end of last year, right?

But in general, right, markets look at these sort of geopolitical events through the lens of A is the US going to get drawn into the, you know, into the to the to the fray, you know, kind of whether it will spread kind of beyond, you know, kind of where it is currently and how much of a of an impact will it have on commodity markets on a go forward basis.

Now, clearly, right, with, you know, kind of the news of the last 24 hours or so, right, it does seem like there you know the possibility or probability of the US getting more involved, um, you know, does seem to have moved. has moved a little bit higher in terms of kind of commodity markets we haven't, we did see kind of the escalation with Israel you kind of hitting some energy infrastructure in Iran, but that was very much domestic focused domestic focused infrastructure, right?

So we're not seeing them kind of hit the production, which is used for exports, so that's why markets were kind of a little bit.

Reacted reasonably positively coming out of the weekend, you know, we did see, you know, Israel has also shut down the Leviathan field, you know, which is a big, you know, gas field and that that's sort of caused some move higher in the LNG and natural gas markets.

The other thing to pay attention to is the Strait of Hormuz, right so.

And then lastly, right, there are there there is capacity right from an oil perspective we've seen kind of OPEC plus kind of raising production recently, right?

There is capacity here in the US, right, but you know you would need to see the price de kind of hold at higher levels before you see a reaction.

Yeah, and as you mentioned, energy is something we'll continue to keep our eyes on, but I do want to get to the retail sales figure coming in below expectations.

What did you make of that?

Yeah, so I mean the headline retail sales number was a little bit missed, but if you actually kind of look through the details and look at the control group, it came in a little bit better than expected, right?

You know, big declines in autos, right?

You saw some building materials and gardening was weak, but some of the Other and food services, but some of the other more discretionary areas were OK.

I think the difficulty that we have with economic data right now is this idea that we've talked about in terms of purgatory, and you can't necessarily look at any single kind of economic report as a standalone.

You almost have to bulk them in kind of like a 345 month time period right because we've Had this pull forward of demand.

We're going to work through some of that, right?

We saw you in terms of the inflation data that we got last week, right, there's still some expectation that there is going to be a move higher in some of that data as we move forward, right?

So you kind of have to look at it in over kind of a period of time in terms of the numbers, right, slowing, you know, a little bit of a slowing in spending, but not, you know, terribly shocking or or bad.

And of course that does bring me to the Fed.

So they do kick off their two day meeting and they have the announcement tomorrow, but I think focus will be on the economic projections and what Powell says.

So based on what you said about the economic data, I think Powell has a tough task here, doesn't he?

Yes, and they definitely do.

And you know you have the potential impact of tariffs, putting the dual mandate at attention with itself in terms of the summary of economic projections, right, I'd expect to see probably a little bit of a move lower in some of the GDP number GDP projections.

If you think about kind of the timing of when their March projections came out, that was before the Rose Garden, right?

So there's a good shot that we see a little bit of a move higher and kind of the inflation expectations, and then you know in terms of the dots, right, that's going to be sort of interesting right you know in the March time period right there were the Federal Reserve was projecting two cuts through the end of this year, which is where markets are at this point, but it only takes one or two people on the. to move, you know, in order for that to move down to one.

So that's, you know, potentially a little bit of a wild card, you know, but I think in general, right, Chair Powell's going to kind of continue to tell us that they feel comfortable in terms of where policy is currently.

They're going to remain patient.

They need to see the impact of tariffs, right?

So I don't necessarily expect a whole lot of movement, you know, he can sort of express a little bit of uh.

The fact that we've seen kind of last week's inflation data suggests that this inflation was moving in the right direction that might help them a little bit though you know the move higher that we've had in oil definitely kind of throws a little bit of a monkey wrench in kind of some of that narrative, you know, but You could start to hear him suggest that come the fall if inflation data continues to act the way it has and we don't see a significant shift, he could start to set the table for a rate cut.

Well, Michael, a lot to keep our eyes on in the next 24 to 48 hours.

So thank you so much for joining me as always.

Thanks for having me.