It’s been just over three months since Donald Trump was inaugurated as President and he has so far avoided significant criticism of Fed Chairman Powell. But everyone knew it was coming! It finally came on Thursday April 17th when Trump messaged that “Powell’s termination cannot come fast enough,” followed by Powell “is always TOO LATE AND WRONG.”

While he didn’t directly cite the catalyst for his ire, the obvious culprit was Powell’s speech to the Economic Club of Chicago the previous day in which he said there’s a “strong likelihood” that tariffs would cause consumers to face higher prices and that unemployment would rise, at least in the short run.

Since the first of January, fixed income portfolio managers have been tasked with the challenge of how to position their portfolios for the coming year. The Summary of Economic Projections (SEP) issued by the Federal Reserve members in September were out of date almost immediately, as economic growth reaccelerated. Concurrent with that reacceleration, the stock market roared higher at the prospect of President Trump rolling back business-hampering regulation and enacting pro-growth policies. By the December FOMC meeting the Federal Reserve was tacitly signaling their error. With that change, market participants are now expecting a 25-basis point cut by this summer and a 50% chance of another 25 basis-point cut by the end of this year.

Despite the extraordinary cycle of shocking world news that has come seemingly every day this December, the capital markets have been relatively stable as investors and traders continued with a laser focus on whether the Federal Reserve would cut interest rates later this month. Specifically, close attention has been paid to the employment report and the inflation report for November.

The narrative as we closed out the third quarter was that the economy had weakened enough that the Federal Reserve would need to trim the overnight lending rate by an additional 50 basis points this year and that rate cuts would continue through next year, with the ultimate target of getting to 3%.

With the unusually hot (for the Northeast) weather, a most satisfying Olympics games, and the last of the days in the Hamptons behind us, now seems a good time to put together a road map of where we think the markets will be at the end of this year. Compared to years past, the last four months of 2024 seem particularly fraught with wild cards.