Stock Market Outlook: Fed Losing Inflation Battle; Asset Prices Still Climb

On Wednesday, the Commerce Department reported the personal consumption expenditures price index — the Federal Reserve’s preferred inflation gauge — climbed in October to an annual rate of 2.3 percent.

Earlier this week, the minutes for the Federal Reserve’s Nov. 6-7 meeting published. The summary suggested that policymakers are prepared to either slow down with interest-rate cuts or pause entirely.

Asset prices, meanwhile, have shrugged off all indication that the Fed’s inflation battle is moving in the wrong direction. Stocks continue to hover at record highs, bond markets remain relatively unbothered, and bitcoin is still knocking on $100,000.

“The economy and stock market simply don’t require super-low [interest] rates anymore,” Russell said. “2.5 percent to 3 percent PCE might be good enough for now. Trade and tax policy will probably matter more than monetary policy going forward.”