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Here’s what you need to know today…

1. Policymakers don’t expect to cut interest rates in March.

2. Companies have cut back on salary increases.

3. Wages are catching up with the cost of living.

S&P 500: 4,845.65
1Mo: +2% | 1Yr: +18% | 5Yr: +79%

The market tumbled lower today as policymakers rained on investors' hopes for a reduction in borrowing costs in March. Big Tech companies reported substantial profits that didn't meet investors' lofty expectations.

Policymakers don’t expect to cut interest rates in March. The Federal Reserve has stopped raising borrowing costs and expects to start lowering them this year, but Chairman Powell doesn’t think they will be confident enough that inflation is under control by the March meeting. The Fed has been trying to discourage borrowing and spending to slow the rising cost of living, but inflation has been near their target rate for a few months now. [🤓]

Companies have stopped offering the large salary bumps of 2022 and 2021. The Labor Department’s Employment Cost Index rose only 0.9% in the fourth quarter, up only 4.2% for the whole year, the slowest pace in two years. Union workers notched big wins in 2023, though. Wages and salaries for union workers rose 5.4% last year, while non-union workers only earned 4.2% more.

Wages are finally regaining ground on the rising cost of living, but not that quickly. The Labor Department reported inflation-adjusted wages and salaries for all workers rose 1% in 2023 after trailing living costs by 1.2% in 2022 and 2.3% in 2021. Inflation-adjusted wages and salaries are still 1.4% lower than in December 2019, meaning we can afford less with our income.

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Why is the Federal Reserve so important?

The Federal Reserve, aka the Central Bank, aka The Fed, is in charge of our whole money system. When the economy is struggling, the Fed lowers baseline interest rates to make it cheaper for consumers and businesses to borrow and spend (lower rates on business loans, mortgages, credit cards, car leases, etc.)

The Fed also pumps more money into the system by buying bonds with new dollars that it essentially speaks into existence. The additional cash keeps the pipes flowing as the borrowing and spending heats up, stimulating economic activity.

Once the economy's strong enough to stand on its own, the Fed starts to raise interest rates and pull back some of that money to ensure the economy doesn't overheat. Inflation is the Fed's heat gauge. The gauge was reading very hot but has been cooling lately.

So everyone's watching how long the Fed will keep restricting the economy with high rates if inflation keeps cooling. The Fed hopes to keep living costs under control without sparking mass unemployment.