A Lot of Wood to Chop

In 2022, Powell gave the public eight minutes of gut-wrenching hawkish rhetoric. In 2024, he reversed course and provided a dramatic dovish transition to a new era. However, there’s a lot of wood to chop to get back to accommodative.

History shows the equity markets perform much better during accommodative periods.

  • The average differential between year-over-year PCE and Fed Funds was -1.09 from 12/31/1999 to 12/31/2009. During that time, the S&P500 returned an average annual return of -0.95% per year.

  • Conversely, the average differential between year-over-year PCE and Fed Funds was 0.85 from 12/31/2009 to 12/31/2019. During that time, the S&P500 returned an average annual return of 13.54% per year.

  • Today, the differential between year-over-year PCE and Fed Funds is -2.90. The Fed needs to rapidly move rates lower by over 2.5% to prevent significant impairment of the economy.

Caleb Sevian