What Powell Really Said about the Economy and What Would Trigger a Rate Cut

For six months now, folks said the Fed had made a “U-turn” and would cut rates at the “next” meeting, or in between meetings, and by 50 basis points, and cut, cut, cut, and would re-start QE. But none of it happened — and might not happen this year. Here’s why, in Powell’s words.

During the Q&A at the press conference following the FOMC meeting yesterday, Fed Chair Jerome Powell summarized strengths, weaknesses, and “crosscurrents” of the US economy, and the global economy, in just a few clear words and explained how the Fed is looking at these developments. Before the start of the Q&A, he concluded his opening remarks with this admonishment:

“Uncertainties surrounding the baseline outlook have clearly risen since our last meeting. It is important, however, that monetary policy not overreact to any individual data point or short-term swing in sentiment. Doing so would risk adding even more uncertainty to the outlook. Thus, my colleagues and I will be looking to see whether these uncertainties will continue to weigh on the outlook.”

And he added the standard Fed lingo, “And, we will use our tools as appropriate to sustain the expansion.”

A similar phrase was also used repeatedly during the rate-hike phase to explain that preventing an economy from overheating by raising rates would allow it continue expanding. So the phrase is not new. It explains Fed decisions in both directions. The concept of the phrase is embedded in the Fed’s dual mandate.

So here is what Powell said during the press conference, in response to a question about the economy:

“It’s a complicated picture. And the answer is we look at all of it. But I would say the big pieces of it are that the baseline outlook has been a good one, and that has basically been consumer spending coming back up in the second quarter.

“And consumer spending is at a healthy level, and that makes sense. You’ve got a tight labor market. You’ve got companies in surveys saying that labor is scarce. You’ve got workers in surveys saying that jobs are plentiful. You’ve got wages going up. You’ve got high levels of household confidence.

“So all of the underlying fundamentals for the consumer-spending part of the economy, which is 70% of the economy, is quite solid.

“Job creation if you take a three-month average is still well above the level of entry into the workforce. So that part of the economy is solid.

“You mentioned manufacturing, and we’re seeing this all around the world: manufacturing, investment, and trade have been weaker. It’s not solely a domestic issue.

“And it may be that there is a range of factors that contribute to that, including for example what China has done over the last couple of years in working to bring down its leverage. Some of it may be uncertainty over your supply chains due to trade developments. The Boeing 737 issues may be contributing in their own way. Lower oil prices are contributing to lower investment, although they’re also leading to lower gas prices, which supports spending.

“So there are many things. There isn’t any one thing that explains it all.”

“But you do see growth in services. So you see this pattern around the world of weak manufacturing, but growth in the far larger part of the services economy, which has led to low unemployment, good job creation, and rising wages.

“That’s kind of the two big pieces of it that you see.

“Then you see the crosscurrents.

“If you lay the crosscurrents on top of concerns about global growth and trade developments, you have the full picture. And I think what we took away from that picture is that we’d like to see more — that we do see these risks, and what we want to do is we want to watch and see whether they continue to weigh upon the outlook.”

The wildcard appears to be inflation, more so than the economy. Inflation as measured by the Fed’s yardstick (core PCE) was on target in the 2%-range for most of last year through December, but is now at 1.6% (after ticking up in the latest reading). In his opening remarks, which he echoed during the Q&A, Powell said (underscore added):

Setting aside short-term fluctuations, Committee participants expressed concerns about the pace of inflation’s return to 2 percent. Wages are rising, as noted above, but not at a pace that would provide much upward impetus to inflation. Moreover, weaker global growth may continue to hold inflation down around the world.

“We are firmly committed to our symmetric 2 percent inflation objective, and we are well aware that inflation weakness that persists even in a healthy economy could precipitate a difficult-to-arrest downward drift in longer-run inflation expectations.”

The phrase I underlined is key: “Setting aside short-term fluctuations.” The Fed won’t react to short-term fluctuations, as Powell pointed out in the admonishment at the end of his opening remarks. Inflation data is volatile and jumps up and down. But a trigger for a rate cut would be a “sustained” period significantly below target – not a couple of months.

For six months now, ever since the FOMC had said that it would be “patient” about future rate hikes, folks have been saying that the Fed had made a “U-turn,” that it would cut rates at the “next” meeting, or even in between meetings, and it would cut by 50 basis points, and cut, cut, cut, and that it would end Quantitative Tightening (QT) and re-start QE.

So now the year is halfway over, and the Fed still hasn’t cut one iota, and QT is still going on, though at a slightly slower rate.

On NPR this morning, I heard an exasperated reporter saying that the Fed’s failure to cut rates yesterday had been a “disappointment,” but that “the Fed expects” to cut rates soon.

This phrasing reflects much of the coverage in the media. But compared to what Powell actually said during the press conference, it’s a misrepresentation. Who “expects” these rate cuts are the media and investors, not the Fed. The Fed is watching economic developments before making a decision. And despite some weak spots, there is a lot of strength left in the US economy where it matters the most, also reflected by the booming stock market and junk-bond market — that’s what Powell tried to convey.

The rate cuts for 2019 may be a pipe-dream: Goldman Sachs and Deutsche Bank. Read“The Market is Almost Always Wrong About What the Fed Will Do”: Chart

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate “beer money.” I appreciate it immensely. Click on the beer mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

 

  94 comments for “What Powell Really Said about the Economy and What Would Trigger a Rate Cut

  1. Lance Manly
    Jun 20, 2019 at 12:44 pm

    >cut, cut, cut

    So we are at 2.25 Fed Funds rate. Not exactly holding back the economy. Maybe a cut would help credit card holders, I doubt many businesses want to get deeper into debt at this point. After the NY and Philly Fed surveys I am interested in what the PMIs are going to show this month.

    • CoCosAB
      Jun 20, 2019 at 2:20 pm

      Credit card rates won’t go bellow the present low fixed rate even if the FRS enters Negative Rates waters!

      What do you think credit cards are for?!

      • cd
        Jun 20, 2019 at 8:39 pm

        serfdom

        • CoCosAB
          Jun 21, 2019 at 3:27 pm

          It seems Lance hasn’t figure that simple reality just yet!

    • Dale
      Jun 21, 2019 at 11:56 am

      To the unpracticed eye, it often appears that the FFR follows the 1-year Treasury. If so, the FFR will be going down soon.
      https://fred.stlouisfed.org/graph/?g=oeF7

  2. Lemko
    Jun 20, 2019 at 12:48 pm

    It’s crazy he didn’t end QT… Cutting rates won’t do anything but show help is on the way down the road with Asset Purchasing later on. Bloomberg Terminal data has 100 % rate cut by July, they follow Bloomberg’s Terminal not their dot plot non sense… It’ll be a December 24th sell-off if they don’t cut end July, but everything going down much before next meeting so they will even if market tells them they were going to anyways… Fed’s purpose is not to offset the markets, they tried defying them once and back pedalled hard 2 weeks after in early Jan, and that December hike was already priced in, imagine if it wasn’t ? Dow would of been down 1500 that day

    China’s bonds no longer accepted as Collateral in Eurodollar Markets or their own Money Markets according to few articles, it was thought PBOC guaranteed the losses at 100 %, after Baoshang they paid 70 %. Now you have Trillions in USD loans backed with shit bonds no longer accepted, 12 Trillion negative yielding assets, which won’t be accepted as collateral… Credit Markets are starting to implode, especially the chinese one… The offshore banks who lent them Trillions, with all those derivatives on top. We are witnessing the beginning of the unravelling, and it came from china’s credit sector

    Without good collateral there is no trust, without trust there is no credit, without credit there is no leverage…

    • Jun 20, 2019 at 12:59 pm

      Link on that article China bonds, no collateral?

      • Rory
        Jun 20, 2019 at 1:14 pm

        Most got repaid fully, but it’s interesting nonetheless https://www.google.com/amp/s/mobile.reuters.com/article/amp/idUSKCN1TH0DB

      • Lemko
        Jun 20, 2019 at 1:34 pm

        Like in 08 from my understanding, Lehman was pushing it’s MBS as collateral for some time in that period, but it all broke when it became official that their collateral was shit and nobody wanted to lend to them anymore… The size in Offshore US Liabilities has been bigger since June 2018 then peak 08, and it’s outside Fed jurisdiction, no over site nobody knows who is gonna get it, huge problem brewing is Eurodollar Markets. According to cfr.org, Fed doesn’t have swap line with PBOC, but can go through BoJ or Bank of Canada which has swaps with the Chinese… Quote:

        The interbank market is now also freezing up as a result of counterparty suspicions: one month after Baoshang, Chinese bond traders in China are “rethinking counterparty risks as shock waves from a government takeover of a bank ripple through the country’s financial markets.”

        it has gotten far harder for corporate bonds to be accepted as collateral for repo financing as lenders increasingly demand top quality bonds such as Chinese sovereign bills and policy bank notes as pledges, with Bloomberg noting that “traders are having second thoughts on taking even AAA rated short-term bank debt as security in the wake of last month’s seizure of Baoshang Bank”

        https://www.wsj.com/articles/warning-lights-are-flashing-in-chinas-money-market-11560858976

        https://www.bloomberg.com/opinion/articles/2019-06-19/china-s-lehman-moment-is-drawing-closer

        https://www.zerohedge.com/news/2019-06-19/meanwhile-china-echoes-lehman-interbank-market-freezes

        Zerohedge are trolls, but this article is well detailed

        • sunny129
          Jun 20, 2019 at 4:27 pm

          If ‘ZEROHEDGE are trolls. why are you listing here?

          Besides apart from ‘gold’ worshipers’articles, I do get relevant information, NOT available on MSM!

          Everything I read goes through my own ‘critical filter. A troll is identified from a mile away. Very common at WSJ!

  3. akiddy111
    Jun 20, 2019 at 12:54 pm

    “For six months now, folks said the Fed had made a “U-turn” and would cut rates at the “next” meeting”

    Folks say all kinds of things.

    Realistically, the Fed is under no pressure (notwithstanding the White House) to cut rates with the S&P 500 closing in on record territory.

    However, smart people got the signal yesterday that the Fed is ready to cut 50 basis points if the S&P drops more than 5% from these levels.
    That’s all that matters.

    • Paulo
      Jun 20, 2019 at 1:57 pm

      yeah, Folks even say the economy is just so darn strong the Bull market should continue easy peasy with all the genius IQ people running the World. Then, I ask myself how come my savings don’t keep up with inflation? How come they are forcing people to chase yield?

      If the economy was strong none of this nonsense would be extended, including all the BS. People would be too busy making money and investing in manufacturing enterprises and other worthwhile endeavors.

      • akiddy111
        Jun 20, 2019 at 3:04 pm

        The Fed is not to blame for savings rates being low. Savings rates are low all over the world.

        The Fed cares primarily about asset values… stocks, bonds, real estate…etc.

        Their employment and inflation rhetoric is not that important either.

        The S&P 500 level is their measure of wealth and prosperity.
        This started all the way back with Greenspan.

        • ZeroBrain
          Jun 20, 2019 at 3:55 pm

          Why should people save when their savings are persistently devalued by the money printers? It seems like a rational decision (spend everything ASAP!) in the face of scarcity, or at least a scarcity mindset.

        • Dale
          Jun 20, 2019 at 5:39 pm

          Apparently you can get a rate of 50% per year on your savings in Argentina. Of course, the real rate is probably significantly lower…

          The savings rate in the US followed the FFR fairly well upward, as long as you were willing to look for the right CDs, or invest directly in short-term Treasurys. As Wolf has pointed out.

          Of course, if you are right then it means that the Fed follows the market rather than the market following the Fed.

        • QQQBall
          Jun 21, 2019 at 8:35 am

          Oh pleazzze! Saves have been getting killed

        • Petunia
          Jun 21, 2019 at 10:03 am

          The savings rate in the US is not low at all for any working person. The social security tax is a forced savings rate of 12.4% for every working person. Not a low savings rate by any stretch of the imagination.

      • cd
        Jun 20, 2019 at 8:41 pm

        Its evil, savers are hated…..sad since they built the country….

      • JB
        Jun 21, 2019 at 11:31 am

        succinctly said, . our economy has shifted to one of financial arbitrage and extraction/skim businesses .

    • Setarcos
      Jun 21, 2019 at 6:35 pm

      Akiddy, note that the President’s choices for the Fed, a former KC Fed governor and WSJ Editorial board member were quickly rebuffed, so not sure Presidential pressure actually exists. And evidence to the contrary, Stanley Fisher pretty much admitted that the Fed stuck their finger in the President’s eye in December with the last hike as a result of his comments (For anyone who thought the Fed was apolitical, check out his comment).

      In typical fashion, the Fed has shifted, ~6 months after their last rate hike. When I make business decisions that only last 6 months, I’m usually embarassed.

  4. NARmageddon
    Jun 20, 2019 at 12:57 pm

    Does anyone have a good idea what “crosscurrents” really means?

    At one point I thought it meant unfunded tax cuts or other types of unsound fiscal policy.

    • Paulo
      Jun 20, 2019 at 1:58 pm

      Nah, Crosscurrents is when the curtain moves and we see the mic and stature of the Great and Powerful Oz.

    • PassengerPidgin
      Jun 20, 2019 at 3:31 pm

      NARmageddon, the way that I read Powell’s use of the term “crosscurrents,” I think that he is using the term to describe external forces on FED economic datapoints that are understood as being neither positive nor negative. I imagine that some crosscurrents might be demographic shifts (population growth/decline or immigration), political uncertainties (Brescape or Italian printing threats), or even potential military incursions/escalations. These factors seem that they could have significant effects on a variety of statistics, especially in ways that the FED may mot interpret as being signs of economic “strength” or “weakness.”

    • d
      Jun 20, 2019 at 4:05 pm

      learn to sail a sail-boat.

      A huge current cross current is peopel reacting to the “FED MUST CUT” BS blaring inthe media driven by the “I Want a low intrest easy economy to make my reelection easy” white house occupant, causing unnecessary/unwanted side pressures in the Economy.

      Just as a river outflow, pushes a sail boat, off of its wind and rudder course. Necessitating course correction’s, wasting time and energy, on the journey to the final destination.

    • Rosebud
      Jun 20, 2019 at 8:27 pm

      Powell is talking about standing waves engulfing the expansion and inflation policy’s. Which, of course, he can’t control. And he sees crosses to the standing wave, 90 degrees, which tells him something.

  5. Jun 20, 2019 at 1:13 pm

    Is Powell taking the Core Inflation concept from the Greenspan era? Hard to understand what the Fed can do to raise inflation? They don’t print money and they don’t create new debt, they only offer it as a middleman to the primary dealers from the Treasury and with no new spending bill what are the prospects? I think the Fed is like that brick and mortar store, going through cycles of downsizing, until they finally close their doors.

    • Bobber
      Jun 20, 2019 at 4:35 pm

      The Fed meets its inflation target of 2% by forcing an artificially low interest rate on markets, which causes debts to grow faster than GDP (leading to inflation), and then leads to financial instability.

      Thus, the Fed’s goal is to artificially stimulate markets then create financial instability. As history shows, the Fed has tunnel vision and does not understand the impact of its actions.

  6. Mike Are
    Jun 20, 2019 at 1:15 pm

    Does anyone think like I do that the Fed “has been tasked” with tanking the economy enough to assist with the defeat of Trump at the next election?

    • Jun 20, 2019 at 3:19 pm

      I don’t see that at all. The Fed is making no effort to tank the economy, and the economy is not tanking.

      • d
        Jun 20, 2019 at 4:13 pm

        The US Economy is not tanking YET despite the best efforts of p 45 to destroy it.

        Which speaks of the resilience of the oodles of residual QE cash slopping around in it.

        A normal Economy without hat QE cash buffer in it would normal be in recession by now.

        ++

        US Shale is about to be saved again, (with a good Us economy knock on) this time, by iran. Every cloud has a silver lining.

        • cd
          Jun 20, 2019 at 8:44 pm

          Earnings are fine, we are the shining star in the world, as mentioned here earlier, cyclical bull markets are long….Buy the dips, great time to be active investor, sectors rotation very visible…hot money or whatever….don’t fight the fed

      • sierra7
        Jun 21, 2019 at 11:31 am

        Wolf:
        Just came back from trip to Santa Clara Valley for school graduations. Have children (all adults some near early retirement ages) in construction (pipe-fitters) management; Comments from one of them as manager: “In all my almost 40 years in the business, never have been so slammed with work!” Also lack of properly skilled people to do all the work. Coming down the 680 corridor into Fremont I couldn’t believe all the construction going on along the freeway. I guess Bart has built a station near the “Auto Mall” and it is a huge success. And where I live in the Sierra Foothills, we continue to lose population over the years due to lack of good paying jobs. The dichotomy of our economy.

    • SocalJim
      Jun 20, 2019 at 3:22 pm

      I think many foreign central banks “have been tasked” with tanking the markets enough to assist with the defeat of Trump at the next election. Watch.

      • d
        Jun 20, 2019 at 4:15 pm

        Then why are they all EASING ?????? or at least Jaw boning EASING bar the old lady of thread-needle street.

      • HowNow
        Jun 20, 2019 at 6:01 pm

        SocalJim,
        That’s absolute crap. Sorry to be blunt, but that seems to be the way things are being communicated nowadays, as in: “He tells it like it is”.

        • IdahoPotato
          Jun 20, 2019 at 6:57 pm

          “He tells it like it is”.

          Followed by “He didn’t really mean it that way.”

    • ZeroBrain
      Jun 20, 2019 at 6:44 pm

      I actually thought to myself back in 2016 that if he followed through on campaign promises and upset the existing power structure, they would do just that. However, he has since boosted defense spending and not started serious investigation of the intelligence agencies. Neocons wish for a few profitable wars, but they can’t be overly upset as they’ve stayed in the game: John Bolton is national security advisor drumming up support for an attack on Iran, reconcilliation with Russia is thwarted, military bases operate in Syria, and arms sales continue to Saudi Arabia.

      So I think the initial establishment hysteria has passed and he is now a known quantity that can be managed. OTOH, some of the democratic candidates could really pull the rug out. But yes, I do believe that the establishment will circle the wagons if any president poses an existential threat.

    • Setarcos
      Jun 20, 2019 at 9:45 pm

      Mike, the Fed has always tanked the economy but so far they haven’t …yet. As to some nafarious motives, time will make those data plots easier to connect. Here’s a data plot – Stanley Fisher said recently, “there was a good chance the Fed wouldn’t have raised borrowing costs in December if Trump had been less vocal”. So Fisher basically showed how political the Fed can be.

      Here’s another data plot – Trump’s nominees to join their club, including a former KC Fed governor and WSJ editor, got uninvited very very quickly. Before you attack their qualifications, really get acquainted with the background of past Fed governors. Good grief.

    • The Colorado Kid
      Jun 21, 2019 at 11:04 am

      I think the Folks on the FED are way more frightened of a Bernie, Warren, or an AOC type Candidate, than they are 4 more years of MAGA. I try to stay apolitical myself because being political fogs the optics for the truth discovery and without truth discovery one cannot hope to navigate the extreme Vol that’s sure to come when this one starts to break up.

    • Laughing Eagle
      Jun 21, 2019 at 3:30 pm

      Mike Are, stop watching MSM especially CNN. All their news is speculation.

      • weinerdog43
        Jun 23, 2019 at 4:45 pm

        Yes, you should be watching Pravda, (oops, I mean Fox) so you can be told what to think.

  7. NARmageddon
    Jun 20, 2019 at 1:30 pm

    One thing about the FRB (Fed) that really bothers me is that it heeds the demands and opinions of Wall Street for much too large an extent. and that FRB never saw an asset bubble that it did not want to encourage. Basically inflate assets and thereby deflate the value of labor and the 99%. But how do the wishes of Wall Street get transmitted to FOMC? Does FOMC have to watch TV, read the news, or hold closed-door meetings?

    Well, one mechanism for WS insiders to transmit their wishes to FRB/FOMC appears to be the “Survey of Market participants” , which I recently discovered on the NY Fed “Market Data Dashboard” page (which is also otherwise very useful).

    https://www.newyorkfed.org/markets/survey_market_participants.html

    Inside the latest apr/may published survey, there are questions such as

    “3a) Provide your estimate of the most likely outcome (i.e., the mode) for the target federal funds rate or range, as applicable, immediately following the FOMC meetings and at the end of each of the following quarters and half years below. For the time periods at which you expect a target range, please indicate the midpoint of that range in providing your response.”

    Basically, it looks like FRB is asking Wall St to vote for what they want the the policy interest rate (FFR) to be! I find it rather shocking that these surveys do not get discussed in the media. I have never seen such a discussion. To me it looks like corruption out in the open. 30 big players on Wall St have their say on these matters at any given time. The list of participants is on the web page.

    To me, this seems every bit as corrupt as if Congress conducted a survey of the richest 30 people in the country as to what they “expect” their tax rates to be next year.

    • Lemko
      Jun 20, 2019 at 1:38 pm

      Most Central Banks now are just janitors… They clean up the mess created, that’s it! Nothing more nothing less

    • Jun 20, 2019 at 2:46 pm

      Whenever I defend LIBOR I get the usual opprobrium; rigged! Of course LIBOR is far more honest, it is businessmen setting rates for the day. The Fed now has SOFR and apparently they want to link the process to reality, somewhat. I suppose there is reason to go slow, as Powell says, and not being moved by short term changes. The Fed was preemptive in the GFR, part and parcel of the dubious outcome to their policy decisions. (Everyone says they were geniuses. How does anyone know? Maybe they made things a lot worse?) What is more corrupt than gamed quarterly meetings and surreptitious reasons for rate changes to the extent that no one really knows where the market would set rates?

    • FDR Liberal
      Jun 20, 2019 at 2:59 pm

      Google Treasury Borrowing Advisory Committee (TBAC). After researching you’ll discover the incestuous relationship between the Fed, Treasury, and TBAC. IMHO it is not markets that the FED follows – it is TBAC.

      • Iamafan
        Jun 20, 2019 at 3:36 pm

        The T in TBAC is for Treasury. They do advice the amount and term of the coming Treasury Auctions.

        Only the Fed has the power to determine the Fed Fund Rate target.
        Today the real rates, the Effective Fed Fund Rates, IOER, and repo rates as reported by SOFR are higher. T bills and notes are lower in the market where you and I can participate. That’s really funny and very strange.

    • Jun 20, 2019 at 3:23 pm

      The Fed has tons of surveys, including of consumers’ expectations of inflation, the job market, and the like. But the respondents don’t get to “vote” on what is happening next. Almost ALL economic data is obtained via surveys, not matter who conducts them, from private sector data to Commerce Department data. And those surveys are not “votes.”

      • NARmageddon
        Jun 20, 2019 at 4:37 pm

        I’m not so sure about that, Wolf. FRB/FOMC literally is asking the Wall St (WS) insiders “where do you think we, the FOMC, will set the FFR interest rate next month/quarter/year?”.

        Why would FOMC ask WS insiders where they *think* FOMC itself will set interest rates in the future? It makes no sense to ask unless FOMC is planning to regard the “guesses” as recommendations. The syrvey is of course not a direct FOMC vote, but I think it is a proxy vote that the FOMC will respond to. And that is corruption, in my book. The desires of Wall St can be very far removed from what FRB *ought* to do to fulfill the dual mandate (employment, inflation).

        Perhaps some academic has studied historical agreement between the SoMP(*) Survey of Market Participants and what FOMC actually does.

        (*) Joke of the day: The SoMP is a Sump is a Swamp. Drain the SoMP!

  8. WES
    Jun 20, 2019 at 1:45 pm

    It seems to me that what you heard the Fed say, means whatever you think it means!

    We no longer have a free market to provide reliable price discovery signals so investors are left trying to decipher the meaning of words.

    Have we been reduced to depending on the old art of deciphering sheep entails?

    That old barbaric relic, gold, seems to have been stirred from its long central bank induced slumber yesterday.

    I wonder what message it is trying to tell us?

    • HowNow
      Jun 20, 2019 at 9:33 pm

      Wes, when or what period of time was there “…a free market to provide reliable price discovery signals”? The last time may have been in 1776, when Adam Smith wrote about it. Otherwise, can you give me a date when that genuinely “free market” has existed?

      • sierra7
        Jun 21, 2019 at 11:40 am

        HowNow:
        How I see the “free market”…..There has been no such thing as a “free market” since the first two humans agreed (maybe shook hands) to a “transaction” of maybe two rocks. Immediately after is was/is all “protectionism”. Simple.

  9. Michael Engel
    Jun 20, 2019 at 1:48 pm

    Uncertainty prior to ME peace conference in Bahrain next
    week by the party that spoil parties.

  10. panatomic-x
    Jun 20, 2019 at 1:53 pm

    powell is no volcker.

    • rich black
      Jun 20, 2019 at 2:05 pm

      That comment makes little sense, When Volcker took over the Fed, the inflation rate was at 14%. Volcker raised rates to kill inflation. Today’s inflation rate is at 1.8%, and the central banks are fighting against asset price deflation. If Volcker were Fed Chairman today, he sure as hell wouldn’t be raising rates either.

      • Jun 21, 2019 at 1:50 am

        Volcker would have raised rates 10 years ago.

    • panatomic-x
      Jun 20, 2019 at 2:57 pm

      powell knows full well that if interest rates aren’t raised, the government will borrow us into oblivion and the pension system will implode. volcker had the balls to stand up to wall street, powell not so much.

      • rich black
        Jun 20, 2019 at 5:14 pm

        The Government will borrow us into oblivion regardless of the rates. Reagan borrowed us into oblivion, percentage-wise, like no other President had done before or has done ever since. Reagan did that borrowing when interest rates were at an all time high. Percentage-wise, Reagan is still the champ at blowing up the deficit. Remember when Cheney stated that, “Reagan proved that deficits don’t matter”?. Most of Reagan’s spending was done under Volcker’s Fed Chairmanship.

        Remember, your hero Volcker stated that Glass-Steagall should not be reinstated. And then consider that, “After an eight-year stint (as Fed Chairman), Volcker entered the private sector, becoming the chairman of the investment bank, J. Rothschild, Wolfensohn & Co.”

        That should tell you all you need to know about, “volcker had the balls to stand up to wall street”. Volcker was a major Wall Street banker. Volcker was Wall Street.

        • Setarcos
          Jun 21, 2019 at 6:50 pm

          Rich, would you enlighten us on how “Reagan borrowed us into oblivion”? I think Congress appropriates spending. His party had the Senate 25% of his 8 year term and had the House 0% of his 8 year term, i.e. he governed virtually his entire time in office with Dems in control.

          Also, how much did the debt increase during his 8 years? How much since then!

        • rich black
          Jun 22, 2019 at 8:35 pm

          Setarcos, it would be my pleasure to give you Reagan’s debt figures.

          “President Reagan increased the debt by 186 percent. Reaganomics added $1.86 trillion. Reagan’s brand of supply-side economics didn’t grow the economy enough to offset the lost revenue from its tax cuts. That was partly because Reagan increased the defense budget by 35 percent.”

          https://www.thebalance.com/us-debt-by-president-by-dollar-and-percent-3306296

  11. Jun 20, 2019 at 2:03 pm

    Wolf,

    I LOVE this site for all the clarity you provide about all things financial in our crazy world. My all-time favorite part is your “Hawk-ometer” which very clearly cuts through all the Kremlinology, so to speak, and in a humorous tongue-in-cheek sort of way, that is still kind of “data-driven” if you can call it that!

    When I look around and everything feels incredibly over-valued, stocks, bonds, real estate (both residential and commercial) and I start to feel like I’m the only sane one in an insane world (I’m not crazy… you’re crazy… you’re ALL crazy!), then I come here for a much better distillation of Fed-speak and market analysis than most other sources.

    There’s this site, and also the CAPE index to keep me in check:
    https://www.multpl.com/shiller-pe

    [the username is tongue-in-cheek as I consider myself a young curmudgeon at heart, hence my fondness for this site]

  12. Lemko
    Jun 20, 2019 at 2:14 pm

    Wolf, why is my reply to Ambrose awaiting moderation ? I know you don’t like links, but people need to see the truth, and why things are unfolding the way they are

    • Jun 20, 2019 at 3:27 pm

      Three links in it. This puts it automatically in my spam filter and I have to go dig it out manually, which I just did :-]

      • Dale
        Jun 20, 2019 at 5:48 pm

        Thanks Lemko for the useful info, and thanks Wolf for the careful curating.

  13. CoCosAB
    Jun 20, 2019 at 2:24 pm

    Very simple… They cannot repackage TRILLIONS of negative yield debt with higher rates.

    Well… unless they want to do something really bad and they need to distract people!

  14. Iamafan
    Jun 20, 2019 at 3:28 pm

    About the media. Somebody called them Presstitutes. I think he’s right.

    • d
      Jun 20, 2019 at 4:23 pm

      something like “advertising whores” would be more accurate.

      As they simply present political bias in a manner to attract page view’s to sell advertising. The amount of truthful, unbiased, information, presented by the MSM today is almost 0.

      People without access to expensive accurate data sources, come here to get a better picture of what is REALLY happening in some sectors.

    • sunny129
      Jun 20, 2019 at 4:33 pm

      Yep.

      populated with ‘whorrespondents! The Fourth Estate has lost it’s credibility in the era of ‘access journalism’ with mere 6 mega Corps controlling 90% of MSM.

      Hence independent blog like this one is very essential. I would like to read the views from ‘mavericks’ rebell rousers’ like charles Hugo Smith (oftwominds com) challenging the establishment and the status quo!

    • timbers
      Jun 20, 2019 at 6:12 pm

      Presstitutes is ok. I think Paul Craig Roberts uses that term. He gets a lot of stuff right. Personally I prefer the term Stenographers to describe the corporate media…because they do no fact checking just report government disinformation as fact as told them by the government official.

  15. SocalJim
    Jun 20, 2019 at 3:52 pm

    The housing numbers just released by the California Association of Realtors point to no need for a rate cut. In most areas, prices continue to grind higher with decent demand.

    • Laughing Eagle
      Jun 21, 2019 at 9:37 am

      Socaljim- house prices are rising not because consumers are buying them but because big cash investors are. WSJ June 21, 2019 titled “ Investors buying Homes at Unparalleled Rate”.

  16. Ididsa
    Jun 20, 2019 at 4:25 pm

    Thanks for the article. I agree with the presentation. However, the bond and equity markets have already priced in roughly 2 cuts, and as you know one is for July. As an earlier comment stated, in Dec 2018 we saw spreads have a mini-blowout, and the equity market tank by 19% on a:

    Forcasted: no hike
    Reality: a 25 bps hike

    The futures markets are wrong all the time, but given the market’s extremely sensitized psychology at this point, relative to hikes/cuts, what’s the “answer” for the Fed here?

    What’s the Fed to do in this situation? The domestic Economic data doesn’t warrant a cut yet.

  17. timbers
    Jun 20, 2019 at 4:40 pm

    “For six months now, folks said the Fed had made a “U-turn” and would cut rates at the “next” meeting, or in between meetings, and by 50 basis points, and cut, cut, cut, and would re-start QE. But none of it happened…” ………You omitted an important part – IF Mr Market commands it to be so. Then this will indeed part in varying degrees. But Mr Market has not commanded it to happen. Mr Market is happily hitting all time highs. No need for Mr Market commands…yet.

  18. Wes
    Jun 20, 2019 at 5:19 pm

    Powell and the FOMC are holding tight. They bend but they don’t break. It has been said that the Trump administration is also trying to exert economic pressure on the FOMC through trade tariffs-mainly China. Powell walked around this by focusing on the data as you mentioned above. He’s astute enough to stay out of the political arena. At every meeting this year he’s been asked about the US dollar exchange rate by a reporter and every time he’s responded by saying that the treasury is in charge of the US exchange rate.

  19. gary
    Jun 20, 2019 at 6:14 pm

    “No rate cuts yet”.

    I don’t think anybody but the most extreme expected immediate, big rate cuts. It’s a process.

    But, where are the rate hikes that were supposed to be happening?

  20. Just Some Random Guy
    Jun 20, 2019 at 6:46 pm

    Powell is deep state. He will engineer a recession/stock market crash so Trump loses next year. Look for rate hikes starting late this year. But Trump appointed him and should have known better. Bigly yuuuge error on his part.

  21. Bobber
    Jun 20, 2019 at 7:08 pm

    Last time stock prices were this high the Fed raised rates. I doubt they will be reducing them anytime soon unless stock prices drop. Plus, inflation is higher now.

    • Gershon
      Jun 20, 2019 at 7:33 pm

      If Powell raises rates, he implodes the Fed’s asset bubble and Ponzi markets. He won’t raise rates until the bond vigilantes, and inflation, force his hand.

      Gold, Bitchez….

      • J.M.Keynes
        Jun 23, 2019 at 12:25 pm

        – The FED raised rates in 1993 and nothing bad happened. It was the first year of seven years of a booming US economy.
        – What will trigger a rate cut ? Falling short term interest rates (3 month t-bill rate).

    • Bet
      Jun 20, 2019 at 8:02 pm

      Markets are priced for disappointment

  22. Setarcos
    Jun 20, 2019 at 9:58 pm

    Van repeatedly told us a year ago that the Fed would blink. Don’t always agree with Van, but today I was reminded of his Fed calls and the markets’ “inexorable rise”. So today with the S&P at an all-time high following Powell’s chat yesterday, must give credit where credit is due.

  23. Dean Seavers
    Jun 20, 2019 at 11:36 pm

    Hi Wolf, I enjoy reading your articles. With the world hooked on cheap money and limitless debt, it seems like interest rates can never rise as evinced by central banks promising another flood of rate cuts and liquidity that were touted as “temporary”. Is this a situation that can go on indefinitely without any consequences, one where we little people can buy stocks to enjoy asset inflation no matter how ridiculous, or will we reach a point where debt can not be contained with more debt. I scratch my head daily wondering if I’m a fool for not putting my life savings in stocks and assuming everything will be fine as it has been and seems like it will always be.

  24. Realist
    Jun 21, 2019 at 4:49 am

    Gold does behave in an interesting way currently. It has reached the highest level during about the 5 last years. In recent times it has always occured that when gold has risen a bit over $1300, the price of gold has been manipulated down, usually through the release of a deluge of paper gold onto the market, but not now when gold has reached over $1380.

    Something new is going on in the economy, but what ?

    • JM
      Jun 21, 2019 at 8:05 am

      Really you think the paper gold stop printing ? You make me laugh today, thank you Realist

    • Setarcos
      Jun 21, 2019 at 6:53 pm

      Realist, insightful comment. Gold pricing has defied logic for years. That takes a lot of heavy lifting and coordination. We should all ask why anyone cares.

  25. SocalJim
    Jun 21, 2019 at 9:46 am

    Today’s existing home sales report from the NAR shows prices rising at nearly a 5% clip year over year. If the Fed cuts rates twice, this 5% number could hit 8% a year. I just don’t know how the Fed can cut rates with prices rising that fast.

    • Jun 21, 2019 at 10:07 am

      4.6%. Sales volume dropped year-over-year for the 15th months in a row. Months’ supply is up year-over-year for the 12th month in a row.

      Here is a mistake you’re making in your Fed calculation: if the Fed cuts twice, it will not even meet market expectations. Three rate cuts are priced in this year, and more next year. Mortgages track the 10-year yield. The Fed doesn’t control the 10-year. And the 10-year has come down hard WITHOUT rate cuts. Even if the Fed cuts rates twice, there is a good chance the 10-year isn’t coming down much further because it is now pricing in federal funds rate between 0% and 1%.

      • SocalJim
        Jun 21, 2019 at 7:01 pm

        I was a bond trader before I was a stock trader … at one of the largest money managers in the country. If the fed cuts twice, there is correlation between the fed funds and the 10 year, and the 10 year will rally. While the 10 year has already come down in anticipation of a fed rate cut, it will come down even more if the fed rate cut actually happens.

        And, the sales volume is picking up from where it was earlier in the year. Some analysts expect a second half housing jump. We will see …

    • SocalJim
      Jun 21, 2019 at 9:16 pm

      I just read today’s housing report. The one I saw reports a 4.8% price increase ( Y over Y ). So, my comment of “nearly a 5% clip” is accurate.

  26. Laughing Eagle
    Jun 21, 2019 at 10:08 am

    JM, yes with all the war tensions, tariff tensions, and a falling global economy, the paper gold guys are finding a huge demand for physical gold pressuring the shorts. Besides now Shanghai is part of the gold equation in their Shanghai Gold Exchange where paper gold prices are not allowed. The Chinese want higher gold prices as they have been buying physical gold for years. If China backs their yuan with gold, dollar will fall even farther in value.
    And the idea you do not want to save because your dollar is losing value, you are being sucked into this Ponzi by taking on more debt or stocks by simply chasing yields so eventually you will not own anything. Your insurance is gold. In 1973 gold was about $90 an ounce, today it is close to $1400. Don’t follow short term swings but the decade rises. But don’t buy ETF’s like GLD, that is simply like Comex, another paper scam.

    • JM
      Jun 21, 2019 at 9:13 pm

      I don’t know anyone who wants to buy a commodity equal to a higher price, do you think the Chinese are so stupid? They are the first to use gold paper outside China to lower the price of gold and buy it at lower prices, which should be because they have a long-term view of decades in the future, the fact that they do not print gold paper officially is because they need to transform their currency of which no one yet trusts much in a currency of investment quality and world trade.
      You are right for the Ponzi system US, but falling into the trap of speculators with the complicity of paid mass media is not the best vision to save our hard-earned savings.

  27. HollywoodDog
    Jun 21, 2019 at 10:54 am

    If the Fed holds the rates steady, we’ll have a moderate to severe recession. Malinvestment–of which there is plenty–will be cleared. If the Fed cuts the rates or resumes QE, we’ll have an economic surge, complete with more asset price inflation, followed by an even greater, perhaps system-threatening seizure/crash. I really don’t know nearly enough about Jerome Powell’s constitution or the internal politics of the Fed to guess as to which way this might play out. It seems obvious that holding the rates steady would be the better option. But nations–or groups of people for that matter–don’t behave rationally. My challenge is to arrange my own finances so that I benefit regardless of the path chosen by the Fed.

  28. Cassandra
    Jun 21, 2019 at 2:41 pm

    One of the things everyone has to get used to in this modern version of society is powerful media voices pushing policies that they desire. And of course the reason they desire those policies are to gain power and wealth. We see this across the board in this modern society. We see it in foreign policy. We see it in politics. And we are definitely seeing it in what is known as ‘financial media’.

    Thus, we see the push for never ending free money from the people who get that money. And the corresponding push in politics against those who want to spread around the money differently. The media machine is trying to create the same over-hyped, evidence-free environment around this question Fed policy that they’ve created in politics. Obviously because people who are going to make a lot of money want it that way. They don’t even care if it crashes the economy, because that just lets them use their new money to buy up everything for cheap. The one thing for sure is that those voices who in this version of hyped, created reality are pushing for more free money intend to grab most of it for themselves.

    • JM
      Jun 21, 2019 at 9:25 pm

      I agree with you.

  29. Copernicus
    Jun 25, 2019 at 11:17 pm

    This article is brilliant!
    It is clarifying in an age where that is very rare.

Comments are closed.