Fed Charts Steady Course on Economic Data

Fourth-quarter 2019 GDP was 2.1%, a bit above consensus and right on top of trend growth. The GM strike/auto sector was a significant drag; excluding autos, real GDP rose a solid 3%. Importantly, investment growth sagged, with the drop coming from sluggish corporate investment; this sector is likely to be positively affected by the gathering ceasefire in the trade war. For full-year 2019, real GDP was up 2.3% and the personal consumption expenditures (PCE) deflator was 1.8%, just under the Federal Open Market Committee’s (FOMC) 2% target. Inflation may be closing in on an inflection point. PCE inflation was just 1.6% SAAR (seasonally-adjusted annual rate) in 4Q19. Note that as the low first-quarter rate of 1.1% rolls off comparisons become easier — likely an upward move in core PCE inflation.

Even at that, inflation seems tame enough for the FOMC: if the core PCE deflator in 1Q20 rises 2.7% (a ten-year high) we’d still have core PCE at just about 2%. The FOMC’s message last week seemed rather clear — they are staying the course and maintaining monetary policy where it is now. The economy is unlikely to have a growth spurt unless investment turns higher, and unlikely to generate significantly higher inflation on its present track. It looks like a counterpunching Federal Reserve from here, which is good for the economy.

This commentary has been prepared by Voya Investment Management 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 expressed herein reflect our judgment and are subject to change. 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) changes in laws and regulations and (4) changes in the policies of governments and/or regulatory authorities. The opinions, views and information expressed in this commentary regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Fund holdings are fluid and are subject to daily change based on market conditions and other factors.

Past performance does not guarantee future results.