The Fed Giveth and the Fed Taketh Away | May 2024 Special Market Update - WT Wealth Managament

Six months ago, the financial markets were giddy with excitement as economists universally predicted three to six rate cuts in 2024. The game plan was as follows: inflation subsides, the economy slows, unemployment ticks upward and the Central Bank cuts the Fed Funds Rate (FFR) in an effort to achieve its dual mandate of stable prices and full employment. A more accommodating FFR of 4.00-4.50% appeared to be a good landing spot from the current 5.25-5.50%, the highest level since 2006.(1)

Historical Fed Funds Rate (FFR)

Historical Fed Funds Rate (FFR)

For months, Federal Reserve Chair Jerome Powell offered assurances about rate cuts in 2024, arguing that periodic hotter-than-expected inflation reports were all part of the "bumpy" road to the Fed’s 2% inflation target. In the past several weeks, those proclamations have been tempered.

On Tuesday, April 16th, while speaking at an event in Washington, D.C., Powell said, "The recent data has clearly not given us greater confidence that inflation is headed towards our 2% target and instead indicates that it's likely to take longer than expected to achieve that confidence." The message from Powell is clear: Rates are going to stay higher for longer than expected.(2)

Over the past three months, inflation has proven to be much harder to eradicate than expected. Any consensus on rate cuts from Wall Street observers has evaporated. Currently, rate cut estimates range from two to three rate cuts -- to no rate cuts -- to even a rate hike or two.(3) (4) The increased uncertainty has led to some additional market volatility, and overall weakness, in the month of April.

There’s an old saying that sums up the various views on rates. It goes "we live in the same building but have vastly different views."

Jerome Powell

Over the past ten years we have written at least a dozen times that the equity markets enjoy low rates like most of us enjoy ice cream. If investors get a simple whiff of a rate cut, markets rally. If investors get a whiff of higher for longer, or even simply higher, the markets sell off.

Need proof? Since November of last year when Jerome Powell first indicated we "could" be at the end of the tightening cycle and the next Fed move would be a cut (although "when" was up for debate) equity markets started a rally that would be composed of five up months in a row (November, December, January, February and March) and would propel the S&P 500 higher by 21.0% and the NASDAQ higher by 22.3%. Now that we have officially entered rate cut uncertainty territory, and the Fed could revive the "higher for longer" mantra, the equity markets softened in April, -4.1% and produced the first negative month since October of 2023 when the S&P 500 declined -2.1%.

Why a rate cut pivot by the Fed? Both the Consumer Price Index (CPI)(6) and Personal Consumption Expenditures (PCE) Index, which is the Fed’s preferred inflation gauge,(7) (8) remain above the Fed’s 2.0% target and increased faster than expectations in the most recent month.(9)

In addition, on April 25th, the initial Q1 2024 estimate of U.S. GDP came in at a noticeably slower, but non-anemic, annualized rate of 1.6%. Accordingly, the WT Wealth Management Investment Committee is carefully weighing the increasing possibility of no rate cuts in 2024 and how the equity markets might react.

Now, do I think an investor would rather have a weak economy, increasing unemployment, and rate cuts OR a good economy, low unemployment, and no rate cuts? I think the latter. The equity markets are forward-looking and just as quickly as prices adjusted to the prospect of rate cuts, they can adjust back.

This is an excellent time to revisit your portfolio with your Advisor and check on progress toward your financial goals. If you have any questions about the Fed, inflation or the economy in general and how WT Wealth Management’s Investment Committee is proactively constructing client portfolios, please don’t hesitate to reach out.


  1. Fed Funds Target Rate History (Historical)
  2. How Jay Powell and the Fed pivoted back to higher for longer
  3. In this article a “rate cut” refers to a 0.25% reduction in the FFR, which historically has been the minimum increment that the Fed changes rates. Under certain circumstances, the Fed has the ability to, and has done in the past, change rates by greater than 0.25% at one time.
  4. Fed Governor Bowman says additional rate hike could be needed if inflation stays high
  5. Consumer prices rose 3.5% from a year ago in March, more than expected
  6. In a report released April 10th, the CPI accelerated at a faster-than-expected pace in March. The CPI, a broad measure of goods and services costs across the economy, rose 0.4% for the month, putting the 12-month inflation rate at 3.5%, or 0.3% point higher than in February. The “core” CPI, which excludes food & energy components, also accelerated 0.4% on a monthly basis while rising 3.8% from a year ago. Neither of these were moves in the proper direction.
  7. In a report released Friday, April 26th, the “core” PCE index, which excludes food and energy, increased 2.8% from a year ago in March, the same as in February and above the 2.7% estimate from the Dow Jones consensus. Including food and energy, the All-Items PCE index increased 2.7%, compared with the 2.6% estimate. On a monthly basis, both measures increased 0.3%.
  8. The Fed favors the PCE Price Index over the Consumer Price Index (CPI) for several reasons. Firstly, the PCE Price Index uses a formula that adapts to changes in spending habits, reducing the upward bias inherent in the CPI’s fixed-weight approach. Secondly, the PCE Price Index’s historical data can be revised to incorporate new information and improvements in measurement techniques.
  9. Wholesale prices rose 0.2% in March, less than expected


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At WT Wealth Management we strongly suggest having a personal financial plan in place before making any investment decisions including understanding your personal risk tolerance and having clearly outlined investment objectives.

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WT Wealth Management is an SEC registered investment adviser, with in excess of $100 million in assets under management (AUM) with offices in Flagstaff, Scottsdale, Sedona and Tucson, AZ along with Jackson Hole, WY and Las Vegas, NV. WT Wealth Management is a manager of Separately Managed Accounts (SMAs). With SMAs, performance can vary widely from investor to investor as each portfolio is individually constructed and managed. Asset allocation weightings are determined based on a wide array of economic and market conditions the day the funds are invested. In an SMA, each investor may own individual Exchange Traded Funds (ETFs), individual equities or mutual funds. As the manager we have the freedom and flexibility to tailor the portfolio to address an individual investor's personal risk tolerance and investment objectives – thus making the account “separate” and distinct from all others we manage. An investment with WT Wealth Management is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information offered is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. Always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETFs carries certain specific risks and part or all of an account's value can be lost. In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller companies, sector and/or thematic ETFs and investments in single countries typically exhibit higher volatility. International, Emerging Market and Frontier Market ETFs, mutual funds and individual securities may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability that other nations experience. Individual bonds, bond mutual funds and bond ETFs will typically decrease in value as interest rates rise. A portion of a municipal bond fund's income may be subject to federal or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject to capital gains tax. Diversification and asset allocation may not protect against market risk or investment losses. At WT Wealth Management, we strongly suggest having a personal financial plan in place before making any investment decisions including understanding personal risk tolerance, having clearly outlined investment objectives and a clearly defined investment time horizon. WT Wealth Management may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. WT Wealth Management's website is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of WT Wealth Management's website should not be construed by any consumer and/or prospective client as WT Wealth Management's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. Any subsequent, direct communication by WT Wealth Management with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. A copy of WT Wealth Management's current written disclosure statement discussing WT Wealth Management's registrations, business operations, services, and fees is available at the SEC's investment adviser public information website (www. or from WT Wealth Management directly. WT Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to WT Wealth Management's web site or incorporated therein, and takes no responsibility therefor. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

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