US Fed Meeting Highlights: Market Ignores Stagflation Warning from Fed

The S&P 500 jumped over one per cent after the Federal Reserve decided to keep interest rates steady. Investors seem to be zeroing in on the Fed's hint at two possible rate cuts in 2025, but they might be missing some troubling economic forecasts that suggest stagflation could be on the horizon.

Fed Meeting Reveals Deteriorating Economic Condition

The Federal Reserve's latest economic projections paint a worrying picture for 2025:

• Estimated GDP Growth reduced from 2.1% to 1.7%
• Core PCE inflation is expected to rise from 2.5% to 2.8%
• Unemployment is projected to increase from 4.3% to 4.4%

These indicators collectively point toward stagflation - a combination of slowing economic growth, rising inflation, and increasing unemployment.

Market Responding Positively Despite Warning Signs

Despite these concerning projections, markets responded positively to the Fed's announcement. This optimism may stem from investors taking the Fed Chair's previous "transitory" inflation claims at face value, despite similar rhetoric in 2021 preceding the most significant inflation spike in 40 years.

What are the Potential Risks Ahead?

If history repeats itself with a double inflation spike similar to the 1970s and 1980s, investment options may become limited, with hard commodities potentially offering one of the few safe havens.

With the Fed rate cut conversation dominating market discussions, investors should consider these broader economic warning signs when making portfolio decisions.