With these growth estimates, it seems like an altogether optimistic decision despite the fact that the Fed continues to highlight risks to the labor market and to inflation.

So the Fed delivered the cut everyone expected today, but what really stood out to me is they're still only anticipating one cut in twenty twenty six, even with the data giving us some mixed signals. Marta, what's driving the Fed's outlook here, do you think?

Well, to my mind, it speaks to the idea that we are seeing very gradual cooling of both inflation and the labor market.

Interestingly, the median growth estimate among Fed committee members increased for twenty twenty six. In my mind, that relates to AI, and Powell said the potential productivity that we could see.

With these growth estimates, it seems like an altogether optimistic decision despite the fact that the Fed continues to highlight risks to the labor market and to inflation.

Interesting. Let's walk through AI a bit more. How could it influence the Fed's decisions going forward?

Well, in full transparency, we titled our twenty twenty six outlook, It's an AI World. So we are in the camp that AI overrides the normal business cycle, fueling earnings growth, particularly in technology that helps support the labor market. That's not to say there aren't weaknesses to watch. In particular, we're eyeing the housing market since it supports consumer spending. For now, we anticipate range bound housing pricing in twenty twenty six. But if we were to see meaningful declines, we could see the consumer rollover even if the labor market doesn't crack. That's not our base case, but it's worth watching.

Yeah. That's really helpful, Marta. And I think it ties right into something that a lot of people are talking about right now. From a market standpoint, how should people be thinking about the impact of rates on the market?

Sure. So fading inflation without an economic slowdown means rate cuts would fuel the economy. The market typically likes that in areas that are rate sensitive. A lot of folks point to small caps in this regard. They could do quite well. Of course, rate cuts that result from a weakening economy typically mean a weaker market.

But I'm not convinced we're going to get either backdrop next year, which would actually bring me in line with how the Fed is currently describing the Yeah.

And, Marta, we know that there's another big layer here, leadership. The Fed will have a new leader, a new chair next year. And even if the data doesn't change, could leadership shift those decisions?

Yes. Absolutely. Fed decisions are always subjective since committee members have to interpret it. Two conflicting mandates, the price stability on the inflation side, the full employment on the labor side, and also have a sense for where they're trending.

So a different framework could cause the committee to emphasize one mandate over another or interpret data differently. Now it's committee based decisions or everybody's decision aggregated. So the Fed chair doesn't dictate things, but there's no question a different perspective at the helm could be an influence factor. That's one rationale for anticipating more cuts than I'm suggesting.

Marta, super helpful. Great perspective as always. Thank you so much. We know that the Fed is still cutting into uncertainty. Inflation is still above target, and next week's CPI could shift the whole conversation yet again. We're gonna be back next week with Marta's full analysis. Until then, have a great rest of your week, and we'll see you soon.