We, like many other participants in the financial markets, have watched and analyzed the minutes from the March 15-16 Federal Open Market Committee (FOMC) meeting (joint with the Board of Governors of the US Federal Reserve) and can conclude that it is quite possible that they are as confused as everybody else.
They (the members) "judged that information received since the Committee met in January suggested that economic activity had been expanding at a moderate pace despite the global economic and financial developments of recent months".
"They also agreed that household spending had been increasing at a moderate pace..."
Here is the big however... (that disputes the consumer / household spending theory that they apparently agreed upon):
The latest GDP Now data (which tracks input for Q1 GDP) released on April 5th (just a few weeks later) suggests that:
"...the forecast for real GDP growth declined from .7% to .4% due to declines in the forecasts for real consumer spending and real equipment investment growth."
So folks, as the US consumer is 2/3 of the US economy and as we have suggested is the "tipping point" for US economic growth (while the drag from the rest of the global economy persists) and if the US economy is 20% of the global economy, the US consumer is some 13.5% of the global economy.
Despite what the FOMC and Fed governors may think, the consumer is not (if we can put any faith in the GDP Now data, which has been rather accurate at forecasting in the past) spending (at least at the moment).
The Fed has tied a great deal to the consumer to pull the US economy (and by virtue of it, the global economy) along.
But it is not unfolding that way.
If the Fed were to raise rates into this scenario, with all the other global issues at hand, then there is going to be a greater risk of a US recession.
So the Fed, until things get better is not going to raise interest rates.
So there is some apparent relief for stock markets that have been more focused on the direction of interest rates than they have been on the fundamentals which are looking like they will experience 5 straight quarters of negative earnings growth.
So things are not looking so good and the Fed does not really have an answer for it, other than to try to put forward a brave and optimistic "outlook".
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist