Paulsen: Three Possible Economic Outcomes for the Markets

Jim Paulsen, chief investment strategist at Wells Capital Management, told CNBC last week that the current situation “lends itself to a market that’s vulnerable to kind of bouncing around a lot but not really going too far.” He thinks that ultimately, what the Fed does “is going to be determined by the economy” and he sees “three major outcomes possible: One is that the global and the U.S. economy just simply roll over here; that’s a very scary outcome” that would require a renewed focus on fiscal policy, but he “think[s] that’s a low-odds probability.” More likely in Paulsen’s view, “the Fed’s hand in the United States may be forced to raise rates” despite economic concerns “if core inflation and wage inflation heads toward 3%.” The third, “good outcome,” he said, is that “we could have global growth pick up, which I think is indeed happening a little bit.” This outcome would lead the Fed to “tighten a little bit, but it would do so against economic strength, and the market may do quite well in that event.”