The Need for Speed

One of the tasks I’m responsible for in our home is signing the kids up for the various sports they want to participate in. Baseball in the spring, soccer in the fall, basketball in the winter. What I learned the hard way is these sports are popular and space is very limited! When it’s time to sign them up, I had better do it quickly or they go straight to the waitlist. Explaining why the kids may not be able to play with all their friends, whose parents were on top of it, is not fun. Speed matters.

When it comes to the present U.S. economy, speed is also very important. After a spike all the way up to 9.1% at the end of June of last year1, CPI clocked in at 3.7% at the end of August2. Data is heading in the right direction…that’s good news. Looking at the labor market, job openings are declining and the quit rate is falling. Also, good news. In current form, however, the transition to interest rate cuts still looks a long way off. While the data is moving in the right direction, it’s going very slow. Especially the labor market, where we desperately need to see some softening.

The focus at the next several Fed meetings will continue to be the need for another 0.25% hike, not whether or not it’s time to cut. The real question now becomes, how long can the economy stomach higher rates and avoid any major damage? Up to this point, rate hikes have been digested very well. Consumers and corporations have brushed the burst from 0%-5.5%3, as if it were nothing. The longer we go, however, the less and less likely that is to be the case. Speed is important.

In this month’s newsletter, we dive into why, if speed is in the cards, and ideas for how investors can position portfolios heading into year end.