The Fed pivot in December parallels what happened a decade ago.
In 2013, the taper tantrum triggered a quick tightening in financial conditions due to a modest change in Fed communication.
Today, we are seeing a similar significant change in financial conditions on the back of a modest shift in Fed communication, but with the opposite sign.
The Fed pivot in December was a modest change in Fed communication, but the subsequent easing in financial conditions has been dramatic.
As a result, 2024 will be the year of the lagged effects of Fed hikes versus the Fed pivot. If the Fed pivot continues to push mortgage rates lower, stock prices higher, and credit spreads tighter, we could get a solid rebound in the economy over the coming months, particularly in housing, which will trigger a rebound in employment growth, see chart below.
Source: BLS, Haver Analytics, Apollo Chief Economist
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