Wednesday's Scoop: Hopeful ☀️

Hey friend - happy spring!

Here’s what you need to know today to inform your work, spending, and investments…

1. Borrowing costs will likely come down this year but not yet.

2. Policymakers think the economy is doing well.

3. High interest rates are creating more debt for the federal government.

Unemployment Rate: 3.9%
^{Still near the lowest rate in 50+ years}

Policymakers think the economy is doing surprisingly well. The Federal Reserve released updated economic projections indicating stronger growth and lower unemployment than estimated in December, with real Gross Domestic Product (GDP) growth of 2.1% for 2024 and an unemployment rate of 4.0%. Policymakers do expect the cost of living to keep rising, revising their 2024 estimate for the core personal consumption expenditures index to increase by 2.6% instead of 2.4%. The core PCE, policymakers’ preferred inflation gauge, has risen 2.8% in the twelve months leading to January.

Inflation Rate: +3.2% (YoY), +0.4% (MoM)
^{Policymakers aim for 2% YoY inflation. (CPI)}

The cost of borrowing for mortgages, credit cards, and auto loans has likely peaked. The Federal Reserve decided not to raise baseline interest rates again this month and forecasted multiple rate cuts this year, signaling an end to extreme interest rate increases aimed at slowing borrowing and combatting inflation. Policymakers acknowledged in their March meeting that inflation is mostly under control, but they need more time and data before calling their mission accomplished. The jump in living costs in January and February didn’t raise alarms for the Fed. Policymakers seem more concerned about the risk of slower growth or an unexpected spike in unemployment.

Higher borrowing costs are creating more debt for the federal government and taxpayers. The Congressional Budget Office (CBO) released its long-term projections indicating a concerning trend for the national debt. The government regularly spends far more than it earns in taxes and borrows the rest. The primary deficit can vary from year to year, but the CBO warned of a growing deficit from the interest payments on the money the government borrows. Borrowing has been extremely cheap over the past decade, but the recent spike in interest rates is projected to compound our national debt much faster. The CBO expects the deficit to average the equivalent of 6.7% of our total economic production (GDP) over the next 30 years, which is three percentage points higher than the average of the past 50 years.

The Market: ⬆️ +0.9%
S&P 500: 5,224.62
1Mo: +5% | 1Yr: +31% | 5Yr: +87%

The market jumped to a new all-time high on Wednesday after policymakers reiterated their confidence in economic growth, slowing inflation, and interest rate cuts this year. The Fed expects to make borrowing cheaper within months.