March 27, 2023
The latest S&P Global Purchasing Managers’ Index data show the economy remains resilient and underscores why we think markets are wrong to expect a Fed pivot to rate cuts this year.
Services orders surged in March to their highest since May 2022, to 53.8 from 50.6 in February. And while the manufacturing PMI remained in contraction territory since last November, it has ticked up every month this year. At 49.3 in March, it now hovers just below an expansion reading.
Improving activity suggests inflation could remain sticky, especially on the services side of the economy. It’s why we think the federal fund futures market is being too optimistic in thinking 75 basis points of rate cuts are likely by year-end.
What does this mean for markets? Volatility will likely continue until rate expectations in the market and economic reality align.
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