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In this episode of Stocks In Translation, Yahoo Finance's markets and data editor Jared Blikre and producer Sydnee Fried chat with Greg Daco, chief economist at EY, to break down the mixed messages facing investors.

They begin by discussing the economic outlook, clouded by recession fears dating back to 2023. “Generally speaking, the US economy is still quite robust, surprisingly though, because we're just coming out of a very significant round of tightening by the Fed,” said Daco. “The economy still growing at about a 3% pace.” He also noted that the most important recent development is “the fact that income growth was revised higher,” both for gross domestic income and personal income, which “both show sustainable momentum when driving the economy forward.”

The discussion shifts to the current economic transition from demand-side to supply-side dynamics or the real-world factors that impact production, such as labor availability, technology, and regulations. “When you look at the economy today and you consider geopolitical developments, political developments, supply chain developments, labor developments, all of those point to a greater influence from supply-side factors,” Daco said.

Daco also cautioned against over-reliance on economic models. “You have to be careful at how models are calibrated… The reality is that you really need to rethink some of the traditional relations between variables. And whereas in the past demand-side factors were the key drivers of economic activity, increasingly you have to focus on the supply side factors.”

Regarding how surveys and data revisions shape Fed policy, Daco explains how Chair Powell distinguishes himself from the rest of the Fed members. “Powell, I think, is ahead of the curve in shifting his perspective on how the economy's likely to evolve,” noting that Powell is “data dependent” while most Fed policymakers are “data point dependent.” He elaborates, ”There is way too much focus, in my opinion, on each and every data report. And the reason why this is a misled approach in the current environment is because you tend to see massive revisions to data.”

Twice a week, Stocks In Translation cuts through the market mayhem, noisy numbers and hyperbole to give you the information you need to make the right trade for your portfolio. You can find more episodes here, or watch on your favorite streaming service.

This post was written by John Tejada.