Skip to main content
My  Account

GOTCHA!

Periodically I have mentioned that I have an affinity for movies because they help me relax. One of my favorite scenes of all time is Jack Nicholson’s speech as Colonel Jessep at the end of the movie “A Few Good Men” when he tells defense attorney Navy JAG Corps Lieutenant Lionel Kaffee (played by Tom Cruise) that “you want me on that wall, you need me on that wall.” I was reminded of this famous scene yesterday in the remarks that came from the Fed.

The Fed had signaled that a rate reduction cycle was underway and there had been two previous cuts that amounted to 75 basis points. Inflation had fallen from over 9% and the Fed felt that the first part of their mandate, managing inflation, was seemingly falling into place. This allowed the Fed to make sure that the employment market part of their mandate was addressed before we saw the labor market falter. While unemployment has ticked up and there is anecdotal evidence of some pocket softness in the labor market, the Fed appeared to be focused on reducing rates. Yesterday they provided the market with the expected 25 basis point cut in the Fed Funds rate and then immediately tamped down any enthusiasm by projecting the likelihood of only two additional rate cuts in 2025.

We were not really surprised by any of this. Jerome Powell has told anyone who will listen that the Fed under his watch will be data-dependent and will make appropriate decisions for the Fed to meet the two elements of their mandate. Powell also knows that in past inflationary cycles, there was the initial wave of inflation that was met with Fed policy to tamp down inflation, and then there was often a second wave. I am not sure if we will have a full second wave, however, inflation has become stubborn at the current levels. Further, unless the “DOGE” really gets a handle on Government expenditures, there is still inflationary pressure from spending and the likelihood that the Trump tax cuts will become permanent.

We were having a discussion in the trading room yesterday about the ability to balance the budget if we only had the courage to go back to pre-Covid spending levels. You know, all the way back to 2019 spending. The challenge is that our elected officials love to give away candy. The reality is that so many of them have not actually ever managed a company that there is little appreciation as to where ”revenue” actually comes from. I am hopeful that DOGE is going to have an impact and there seems to be support from the populace to appropriately manage government expenditures. This attitude is not surprising given that so many people have been suffering from the elevated prices in the economy. We shall see! For now, Jerome Powell is perched on that wall and seems to be ready to continue to battle inflation.

I wish you and your families a blessed and Merry Christmas and A Happy New Year!

This commentary has been prepared by Knights of Columbus Asset Advisors (“KoCAA”) for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions and information expressed herein reflect our judgment and are subject to change without notice. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults, (5) changes in laws and regulations, and (6) changes in the policies of governments and/or regulatory authorities.

KoCAA is an SEC registered investment adviser that maintains a principal place of business in the State of Connecticut. For information about KoCAA’s business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at adviserinfo.sec.gov. KoCAA is a wholly owned subsidiary of Knights of Columbus, one of the world’s largest Catholic Lay Organizations. Investing involves risk and you may gain or lose money on your investments. For additional information visit KoCAA.com or write to kofcfunds@kofcassetadvisors.org.