January 2024

The good news is the stock market has responded positively to the fact that since October 19th, the 10-year Treasury bond yield peaked at 4.99% and has since fallen dramatically. Furthermore, at the December Federal Open Market Committee (FOMC) meeting, the Fed revealed that the “dot plot” from all 17 FOMC members is signaling three rate cuts in 2024. Additionally, three to four rates cuts are anticipated in 2025 until key interest rates hit 3.5% to 3.75%. So in total, the FOMC dot plot revealed six to seven key interest rates cuts are planned for 2024/2025.

What is really happening is the Fed has already hit its 2% inflation target. The Labor Department announced that the Consumer Price Index (CPI) rose 0.1% in November and 3.1% in the past 12 months. The CPI should be at the Fed’s 2% range no later than by June 2024. How do we know that? Well, because the monthly CPI increases from December 2022 to May 2023 are 0.4%, 0.41%, 0.45%, 0.38%, 0.41% and 0.44%, respectively. Once these large monthly gains are removed from the 12-month CPI calculation, the monthly gains only range from 0.1% to 0.3%, so the annual rate will naturally decline. If we look at the CPI in the past six months, it is already within the Fed’s 2% target range.

Furthermore, the Fed announced that its favorite inflation indicator, the Personal Consumption Expenditure (PCE) index declined -0.1% in November, which is the first …