Fed's Potential Longer Pause and Economic Outlook with Jeff Schulze

Fed Policy and Inflation Outlook

• 💡 Jerome Powell signaled uncertainty about a December rate cut, suggesting it's not guaranteed and may not solve labor market issues.
• 📈 Inflation is considered the new norm for at least the next couple of years, with current increases primarily attributed to tariffs.
• ⚠️ Core goods inflation remains positive at approximately 2% month-over-month, with less aggressive pass-through than anticipated.
• 🎯 The FOMC is expected to cut rates in December but then pause to reassess economic activity.

Labor Market Dynamics and Future Growth

• 📉 A longer pause in monetary policy is anticipated after the December rate cut, particularly concerning the labor market.
• 🧩 The US has experienced a weak labor market in 2025, largely due to labor supply issues like lower immigration.
• 🚀 By 2026, a more robust labor market is expected due to a policy mix of Fed cuts, fiscal impulse from the 'one big beautiful bill,' and trade certainty.
• 📊 Sub-100,000 jobs created per month is seen as the norm, sufficient to sustain the current economic expansion.

AI, Debt, and Economic Pressures

• 🤖 While AI is causing some job market dislocations, the overall labor market is expected to remain relatively robust due to the policy mix and rising corporate profits.
• 💰 Goldman Sachs warns that mounting debt could trigger a reckoning if growth stalls, with government shutdowns already costing the economy significantly.
• 📈 Despite potential short-term GDP impacts from shutdowns, a robust economy is expected next year, with AI investment acting as a tailwind.

Market Valuations and Equity Performance

• 📊 Current market conditions are not yet considered bubble territory, with strong earnings delivery from hyperscale companies like Amazon and Apple.
• 🚀 Capex is expected to remain strong, supporting S&P 500 earnings and the broader US economy.
• 📈 Historically, equities perform well during Fed rate-cutting cycles, especially in soft landing scenarios, with significant cumulative returns observed over two years following such cycles.