An Outstanding Performance: Q4 Earnings Season Shattering Expectations

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On the latest edition of Market Week in Review, Director and Senior Investment Strategist Paul Eitelman and Head of Portfolio & Business Consulting Sophie Antal Gilbert discussed highlights from U.S. Federal Reserve (the Fed) Chairman Jerome Powell’s recent speech. They also provided an update on the fourth-quarter earnings season and chatted about key takeaways from U.S. President Joe Biden’s recent phone conversation with Chinese President Xi Jinping. 

Inflation disappoints as Powell stresses continuation of accommodative policy

Remarks delivered by Fed Chairman Jerome Powell in a Feb. 10 speech to the Economic Club of New York were not particularly surprising, but the tone of his speech was important for a key reason, Eitelman said. “Powell’s speech was about as dovish as it could have been,” he explained, “with the Fed chair stressing that despite substantial progress in the nation’s economic recovery, the central bank is still a long way from achieving its dual mandate of maximum employment and price stability.” As evidence, Powell pointed to the fact that millions of Americans still remain unemployed as the nation struggles through the COVID-19 crisis, Eitelman said.

“Powell’s comments seem to emphasize that the Fed wants to stay as accommodative as possible for as long as possible,” he noted, adding that the central’s bank switch last August to an average inflation targeting framework means that strong economic growth alone won’t be enough to justify raising interest rates. The potential for any rate hikes will hinge more on the status of U.S. inflation, Eitelman explained, with the central bank already stressing that inflation may be allowed to overshoot its 2% target for some periods of time.

Recently released core inflation data shows that inflation continues to run weaker-than-expected, he said, with the latest numbers from the Labor Department showing a 1.4% increase in consumer prices on a year-over-year basis. The reading, which Eitelman characterized as a negative surprise, reinforces the view that the Fed will refrain from raising rates for a considerable amount of time, he stated. The combination of an accommodative central bank and anticipated strong economic growth is likely to spell a good environment for U.S. risky assets this year, Eitelman added.

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