Expect Some Surprises out of the Fed

Dr. Jeffrey Roach, Chief Economist for LPL Financial, highlights the capital spending plans for many businesses and why the dot plots will likely shift upwards.

Last Edited by: LPL Research

Last Updated: December 12, 2024

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Jeffrey Roach:

Hi, I am Jeffrey Roach, Chief Economist for LPL Financial, with an update on what's new in the macro landscape and a call to action for investors. First, businesses plan to ramp up capital spending. Well, in one of the first full reports after the election, we read that a sizable portion of businesses plan to increase capital spending in the next few months. And this survey is a pretty good predictor for business investment, one of the categories of our country's economy. This chart shows the percentage of firms planning to add capital such as tech, equipment, and machinery. Well, that's spiked after the election and is the highest since the start of 2022 when companies were spending a lot on technology to accommodate hybrid workers. In general, our view is businesses find the current climate to be positive for increasing capital spending, and as businesses respond to favorable conditions, growth should be supported by both consumer spending and business fixed investment.

Jeffrey Roach:

Second, inflation, excluding housing, is right on target. The various inflation-related metrics are a bit mixed, hence the debate among investors about where rates are heading. But consumer inflation outside of housing is indeed quite encouraging. Yes, a bit of an uptick in recent months, but if you take the various data as a whole, inflation dynamics are improving, albeit slowly. Third, expect some surprises out of the Fed. When the Fed meets on the 18 of December, the committee will publish an updated summary of economic projections. I'm showing the second figure in the packet, which is infamously called the dot plot. And for those who are keen watchers of markets and Fed policy, you'll recognize this chart. You should expect these dots to basically shift upward. In the December 18 edition. Inflation is still sticky, the economy is chugging along with lots of animal spirits, and the Fed will not cut rates as aggressively as they telegraphed just a few months ago. Well, that's all for now. If you want more insights on global market trends, follow us on social media and take care.

 

Dr. Jeffrey Roach, Chief Economist for LPL Financial, highlights the capital spending plans for many businesses and why the dot plots will likely shift upwards.

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