Fed Members Fan Out to Douse Raging Rate-Cut Fires

So far, vice chair Williams, Mester, Bostic twice already, and even Goolsbee who accused markets of wishful thinking.

By Wolf Richter for WOLF STREET.

All heck re-broke loose in the markets last Wednesday after the Fed announced that it would keep its five interest rates steady, with the top at 5.5%, and with the “dot plot” in its Summary of Economic Projections (SEP) showing that 11 of the 19 participants expected three or more rate cuts in 2024 while 8 expected between zero and two cuts, which put the median therefore at three rate cuts in 2024. But trading in the options market implies six rate cuts in 2024 – double the median projections.

Alas, for most of 2022, the dot plot projected rate cuts in 2023; and then in the December 2022 dot plot, those rate cuts in 2023 vanished.

The Powell-was-dovish meme started in May 2022 and swamped the internet after every single FOMC meeting, no matter what Powell actually said. Markets have been betting on rate cuts ever since the Fed started hiking rates. And those Powel-was-dovish memes and rate-cut bets were followed up by subsequent rate hikes all the way to 5.5%, and markets have been wrong with their rate-cut bets in 2022 and 2023, and so that’s nothing new.

What’s new is the magnitude of the fires that ensued in the markets, and so Fed members fanned out to douse those fires, starting with Fed Vice Chair John Williams on Friday with his line, “We aren’t really talking about rate cuts right now.”

Today, it was the turn of Chicago Fed president Austan Goolsbee, who said in an interview on CNBC that he was “confused” about the markets’ interpretation of Powell’s remarks last Wednesday, that those interpretations were essentially wishful thinking.

When he was asked what the Fed did on Wednesday, what the change of policy was, he said: “We voted not to raise rates,” he said. “Policy change was, No Change. We kept rates where they were.”

“The data on inflation is the key thing that we missed in our mandate, and the key thing that should drive our decision making is on inflation,” he said. We have seen significant improvement on the inflation front, bringing us back closer it looks like to our target. And that’s reflected in the SEP dots.”

When he was asked if there was still a bias to hike after the word “any” was added to the statement (“In determining the extent of any additional policy firming…”), Goolsbee said:

“If we get improvement on inflation, that we’re clearly moving to target – and we’re still not there yet, we still need to see these markers – if we get inflation back into the range of our dual-mandate goals, then we’ve got more symmetric concerns, let’s call it, about both sides of the dual mandate,” he said.

When he was asked about what the market “heard” in reaction to the meeting, he said:

“It’s not what you say, or what the chair says. It’s what did they hear, and what did they want to hear. I was confused a bit; was the market just imputing, here’s what we want them to be saying? I thought there was some confusion how the FOMC even works. We don’t debate specific policies, speculatively, about the future. We vote on that meeting. And we voted at that meeting not to raise rates, we put out an SEP that forecast for next year that the individuals on the FOMC collectively thought conditions are going to be not a recession and inflation is going to be coming down, which would allow us to reduce the restrictiveness. And it’s hard for me to get into the head of where the market is. I think it’s best to remember the old Volcker lesson: our job is to act, and their job is to react.”

Also today, Cleveland Fed president Loretta Mester, a voting member of the FOMC in 2024, came out in an interview in the Financial Times to douse those rate-cut fires.

“The next phase is not when to reduce rates, even though that’s where the markets are at,” she said.  “It’s about how long do we need monetary policy to remain restrictive in order to be assured that inflation is on that sustainable and timely path back to 2%.”

“The markets are a little bit ahead,” she added. “They jumped to the end part, which is ‘We’re going to normalize quickly’, and I don’t see that.”

On Friday, it was New York Fed president and Fed vice chair John Williams who, in an interview on CNBC, trampled all over those rate-cut fires:

“We aren’t really talking about rate cuts right now,” he said. “We’re very focused on the question in front of us, which as chair Powell said… is, have we gotten monetary policy to sufficiently restrictive stance in order to ensure the inflation comes back down to 2%? That’s the question in front of us.”

When he was asked about futures pricing for a rate cut in March, he said, “I just think it’s just premature to be even thinking about that.”

“It is looking like we are at or near that in terms of sufficiently restrictive, but things can change,” he said. “One thing we’ve learned even over the past year is that the data can move and in surprising ways, we need to be ready to move to tighten the policy further, if the progress of inflation were to stall or reverse.”

“We’re definitely seeing slowing in inflation. Monetary policy is working as intended,” Williams said. “We just got to make sure that … inflation is coming back to 2% on a sustained basis.” (We linked the CNBC YouTube video of the interview in the Wolf Street comments).

Also on Friday, Atlanta Fed president Raphael Bostic, a voting member of the FOMC in 2024, gave two interviews to step out those rate-cute fires, one with Reuters, and the other later in the day with Marketplace, which aired on NPR.

In the Reuters interview, Bostic said, that he sees two rate cuts in 2024, starting “sometime in the third quarter” if inflation continues to drop as expected.

“I’m not really feeling that this is an imminent thing,” he said, and policymakers still need “several months” to accumulate enough data and confidence that inflation will continue to fall before moving away from the current policy rates.”

He expects core PCE inflation to end 2024 at around 2.4%, which would be enough progress towards the Fed’s 2% target to justify two rate cuts in the second half of the year.

Bostic told Reuters that he will be cautious about cutting rates too soon. “We’ve been getting close to the neighborhood” in terms of the three-month and six-month core PCE readings, he said, but “I am going to try not to presuppose anything at this point,” he said. “We’ve been surprised throughout the pandemic on a number of fronts, some to the good and some to the bad.”

In the Marketplace interview, Bostic said: “I use the words patient, cautious and resolute. And this is the time when we’ve got to be resolute, and make sure that we don’t jump to conclusions and declare victory. Look, there’s still a ways to go.”

“And you know, headline inflation is a little above 3%, core is above 3%. And our target is 2%. So we need to really make sure that we’re well on our way. And when we do that, then I’ll be feeling a lot better. But I don’t feel like we’re there right now.”

And he affirmed what John Williams had said on CNBC earlier on Friday: “I’m actually where John is on this. I’ve been saying for a long time, we need to be willing and comfortable being higher for longer.”

“For me … the time when we would consider dropping rates is really still Quarter 3 of 2024. That’s in my outlook, that’s what I have in mind if inflation proceeds as I expect it will.”

“I’m not looking for anything or expecting anything imminent to happen. We’re just going to let the economy keep running and make sure that inflation is well on its way to 2%,” he said.

“But you know, financial markets were talking about us cutting last year [2022] or this year [2023], and that didn’t come to pass either. So we’re kind of in a push on this. And we’ll see sort of where things progress in the early part of 2024.”

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  286 comments for “Fed Members Fan Out to Douse Raging Rate-Cut Fires

  1. Thomas Curtis says:

    I have begun portfolio tax adjustments. I believe we will see a small correctionespecially in the magnificent 7. I expect most of the adjusting to be done this week since most of Wall Street is generally gone next week.

    • SoCalBeachDude says:

      DM: The Magnificent Seven stocks have risen 75 per cent this year, while the other 493 companies in the S&P 500 are up 12 per cent – what does it mean for your 401(k)?

      This year’s stock market rally was led by a handful of technology stocks that have come to be known by Wall Street as the ‘Magnificent Seven’. Apple, Amazon, Alphabet, NVIDIA, Meta, Microsoft and Tesla together are up around 75 percent since the beginning of the year. In comparison, the S&P 500 – an index of America’s largest 500 companies – was up but by significantly less – almost 23 percent through December 18.

      • GuessWhat says:

        Great analysis!

        And with Uncle Sam spending 36% ($1.7T deficit / $4.7T revenue) more than it took in last year and no change to the trajectory of spending in ’24, there’s no recession on the horizon until maybe late ’24.

        Unemployment claims are the indicator, and over the last few months, they’ve averaged ~ 220K, well below the sustained threshold of 250K that marks the impending arrival of a recession.

      • Harry Houndstoothh says:

        All bubbles end in crashes.

    • joedidee says:

      I’m sensing a relief rally of some sort in asset purchases
      don’t think there is much change at all
      but lots of $$ sitting and waiting for signal – false or not

    • J Pow says:

      See how my words and my inaction help 7 stocks to keep moving higher.

    • Crypto investor says:

      It’s all over. Mortgage rates have fallen significantly and next year we will get the needed rate cuts. RE to the moon! Bitcoin to the moon! Thank you FED

      • Sacramento says:

        Do they give you cheerlleader pom poms when you invest in crypto?

        I think every crypto investor needs a psychological evaluation. Never have I seen such a patent ponzi scam from hell in my life.

        It’s embarrassing to watch so many fall for it.

        It’s like watching people buy snake oil. I just cringe and wince in pain to see such idiocy.

  2. SpencerG says:

    It is interesting that Goolsbee mentioned one of Volcker’s sayings… because not in a million years would the Volcker Fed have put out a “Dot Plot” about Fed governors guessing about rate hikes/cuts going forward. Hell, he didn’t even put out the MINUTES to the FOMC meetings!!! You couldn’t find out AFTER the meeting what they had done IN the meeting… banks and bond traders just had to guess based on other sources of information.

    By the time that Alan Greenspan came along it was required of the Fed that they publish their minutes a few weeks after their meeting. So “Fed Watchers” started guessing what was up in advance of that based on how Greenspan held his briefcase (Wolf’s words) or some other such nonsense.

    NOW the Fed is publishing in almost real time what they are doing… why they are doing it… AND WHAT THEY GUESS THEY WILL BE DOING IN THE NEAR FUTURE??? Of course the markets are trying to front-run them… and Volcker has got to be rolling over in his grave.

    • Thomas Curtis says:

      I heard Powell say that the Fed prefers to have financial markets move before rate changes.

      • Wolf Richter says:

        The Fed has long followed the policy of “signaling” everyone in advance where rates were going, so markets can follow these signals and adjust, and by the time the Fed hikes or cuts, there are no surprises.

        This works most of the time, and when markets go off the rails, like right now, Fed members fan out to put markets back on the rails so that there won’t be any surprises.

        Markets get still surprised from time to time though, most recently in March 2023, when markets expected no hike, or even a cut, due to the banking crisis, and the Fed hiked anyway:

        • Softtail Rider says:

          The chart linked on 12-14 would have looked much better had it included 1975 data to date. I am beginning to hear voices from then echoing higher inflation in the coming months. Stagflation may be around the corner.

        • Wolf Richter says:

          I have trouble seeing stagflation currently. But I do see signs that inflation will dish up more nasty surprises in 2024.

        • Gary says:

          Perhaps if the Federal Reserve used the 1980s character “Max Headroom” their messaging would be more believable than the current tired mix of FOMC members; i.e., Federal Reserve Corporation employees.

        • Wolf Richter says:


          They should hire me and give me a Taser, and I’ll handle the messaging for them, LOL.

        • Nadia says:

          The lack of framework and strategy at the Fed is as appalling as our other failed institutions. Strong stench of late stage empire decay. Markets are now just trained Pavlovian dogs waiting for the FRB master to throw the next bone.
          Unthinkable in a healthy functional Republic to have the fate of economy and financial health dependent on the whims of incompetent corrupt bureaucrats that flip flop at every step.

        • JeffD says:

          Having you show up with a taser will be the Fed’s Rick Roll. Ding dong! Bzzztttt.

        • John H. says:

          “The public at large have learned to understand, and I am afraid a whole generation of economists have been teaching, that government has the power in the short run, by increasing the quantity of money rapidly, to relieve all kinds of economic evils, especially to reduce unemployment.  Unfortunately this is true so far as the short run is concerned. The fact is, that such expansions of the quantity of money which seems to have a short run beneficial effect, become in the long run the cause of a much greater unemployment.”
          — F. A. Hayek A Free Market Monetary System, lecture Nov. 11, 1977

          At some point, we will pay for 20 years of extraordinary monetary expansion. The question is: will we pay for past interventional exuberance through price inflation, a jobs depression, or both?

          That the Fed doesn’t know the answer to that question is the direct message of Powell’s presser, and the opinions of the dot-plotters. Kudos to the Fed spokespeople for their honesty.

          News purveyors and investment market participants – especially the whining variety – would LIKE them to know, but they don’t.

        • JimK says:

          Reminds me of cattle drives. When they start to veer off course (or message), one of the cowboys push them back in line (back on message). Kind surprised that Goldsbee was confused about the reaction, when everyone else heard it the same way, and nobody else was surprised at how the market reacted. I think he should have said that he was surprised at JPow’s tone. Anybody paying attention had to know that most short term investors, and even many long term ones, wait to pounce on every utterance. Combined with a less restrictive dot plot, I cannot understand what else he could have expected. Market is back to simmering mode, will erupt again on the next piece of bad news is good, news, or start a landslide if inflation data signals another uptick in inflation. Crazy times.

    • Not Sure says:

      I thought the line, “It’s not what you say, or what the chair says.” was a real knee-slapper.

      Yeah, it’s not what the chair or anyone at the Fed SAYS. It’s what they DO. And right now, the Fed is cautiously holding steady with a growing pause in hikes while they start to hint at thinking about thinking about cuts in their own predictions. They SAY, “We aren’t really talking about rate cuts.” Right, except for the part where they just overwhelmingly published their own astonishingly generous forecast of 2024 rate cuts in writing via their dot plot. Meanwhile, the 10 year is sitting below 4% and M2 pretty much halted its decline back around May 2023. Maybe they won’t cut in 2024, or maybe they will, but it sounds pretty darn likely that rate hikes are over for this cycle.

      • HowNow says:

        After Powell talked about rate cuts… comes “We aren’t really talking about rate cuts.” What more needs to be known. This is a clown show.

        To SpencerG’s observations, because the Fed kept things under wraps as much as they could, there was an intentional move toward greater transparency. starting with Greenspan. He even joked, during Congressional testimony, that he intentionally tried to make what he was saying obscure.

        So this is the result. Powell is trying to be more open and transparent, thinking that the markets would take a measured response, not knowing (like most people with half a brain) that the market would ejaculate. Now they’re trying to walk back the “transparency” and get the toothpaste back into the tube.

        They should add some normal people to the FOMC, people who actually have a complete brain and have a better sense of how human beings behave. I’ve long held a mistaken belief that with 400+ PhDs, they’d know which way is up.

        • Mark says:

          How Now

          I think you’re right. I never liked clowns very much , but Powell’s clown outfit is really excellent.

      • JimL says:

        I have to laugh at how much value people put into the dot plots. People are taking them as gospel when they should be taking them as off the cuff predictions by people who don’t really look into the future that much and deal more in the now.

        • Happy1 says:

          Yes, look at the predictive value of the dot plot retrospectively, they are close to worthless

    • Motorcycle Guy says:

      SpenserG and Not Sure (below)

      I appreciate your comments. By the time was finished reading what these Academic a$$wholes were saying I was livid.
      I’m glad you were able to be more reserved in your comments.

    • dishonest says:

      Perhaps Jerome will eventually publish their scripts several weeks before FED meetings. Then we can see how well each player beguilingly carries out their roles.

  3. Socal Rhino says:

    Seems the Fed is mixing messages by including the dot plots. They say they are not talking about cuts, and the individual plots show forecasts of cuts. Is there value in including them?

    • HowNow says:

      SR: Include them? You mean the dot plots or the Fed? No point in including either of them. They have months to figure out what they’ll say, then reverse themselves a day or two later.

    • Emanuele says:

      The FRB should have exactly zero communications. There are macroeconomic rules that dictate exactly where the rates should be based on other variables – see Taylor rule. The Fed should state which model they are following, and stick to it, instead of blowing in the political wind. This is not monetary policy of a developed country, it’s an insult to a banana Republic.

  4. Neil C says:

    If you believe in Elliott Wave Theory, one of the top proponents of that theory, as recently as last week, was fully expecting the market to rise. Which it did. So maybe the market moves in ways that are not always tethered to the economic news headlines.

    • blahblahbloo says:

      These kinds of theories are very short-term forecasts based entirely on the mechanics of the mass psychology of investors.

    • Absur Ditty says:

      so exciting to learn about this thanks for sharing. I just read up on the Elliott Wave billionaires. I’m going to devote all my attention to learning Elliott wave trading.

      • Motorcycle Guy says:

        Absur Ditty,

        That’s good. As a Stockbroker for 32 years, I studied technical analysis from the time I graduated high school. When I got licensed as a broker (in 1982) I studied Elliott Wave Theory and subscribed to Peter Eliades’ Stock Market Cycles. I also appreciated the work of Dan Sullivan (The Chartist newsletter).

        But understanding the macro environment is also very important which is why we are subscribers and supporters of the Wolf Street Report.

        • HowNow says:

          And I read Norman Fosback’s “Stock Market Logic” which presented research on various technical and theoretical strategies for investing. He held a very dim view of all technical analysis tactics. They are little more than noise, not patterns.

  5. Phoenix_Ikki says:

    Hahah….FED is getting really good at being the arsonist and the firefighter all at the same time.

    Is it hubris or just willful ignorance? Even us commoners can see that market will fantasize and make up their own reality over any in between lines from the FED, and yes the dot plot rate cut is that in between lines signal, so perhaps if you don’t want them to run wild over their own fantasy, don’t give them any hints instead of backpedaling which the FED also really excel at..

    • Bead says:

      Yes! What a cop out! Everybody on the planet heard the Wall Street media drumbeat. And The Fed wrapped the gift in pretty paper before belching their “just kidding, wasn’t me” nonsense a couple days later. It’s all fog but underneath it seems they’re bending over for the White House yet again. As for the marks who jumped over the moon last week, too bad so sad.

      • Blam 35 says:

        You go, totally agree, the back pedal was plausible deniability against allegations that the feds.main goal is asset inflation.

    • kpl says:

      “Hahah….FED is getting really good at being the arsonist and the firefighter all at the same time.”

      Getting really good? It has been a master since Greenspan days.
      Don arson’s robe – Create a fire by cutting rates, keep it there for a while, give the markets Pavlov dog’s treatment where it thinks it is forever, raise rates, markets tumble – now Don Firefighter’s robe – cut rates, put this fire out and create fire somewhere else. Along the way, print money, make money free (price of capital =0, price of eggs=$$ – hahaha) , screw tax-payers, bail out banksters, destroy capitalism and come out victoriously squeaky clean. Market has to be propped up even if tax-payers are screwed

      This has been the Fed’s playbook for last 4 decades.

      • HowNow says:

        Don’t confuse mistakes with conspiracies. They make mistakes; they aren’t conspiring to rip-off Americans. That’s total bullshit. If it were really true, and something you could bet on, you’d be rich. If so, you probably wouldn’t be bellyaching about what you imagine are the Fed’s criminal intentions.

  6. Sporkfed says:

    The Fed has lost control of the narrative because
    they are afraid of upsetting the markets. The market no longer believes that fighting inflation
    is the main priority. The Fed should have continued to bang that drum, but instead they
    tried to appease the markets, the banks, and

  7. Steven Gilbert says:

    This is a ridiculous game of micro analysis that the Fed and Wall street encourage. It loses sight of what’s really important. Business decision makers making asset allocations in the real economy

    • NYguy says:

      That’s crazy talk. No one runs a business anymore, instead their eyes are glued to a screen watching every squiggle. It’s the financialization of the economy and it’s why we have 30+ trillion in debt with millions homeless and many more on the precipice.

  8. boikin says:

    I have come to the conclusion that it doesn’t matter what the fed says or does till they actually drop rates. The market has gone full irrational and are now going to try and prove their new mantra: “Markets can remain irrational longer than the fed can keep rates high”.

    The market has already disregarded anything that looks like reality why should it stop now? At some point something is probably going to have to give it just a question of which on.

    • HowNow says:

      “The market has already disregarded anything that looks like reality why should it stop now?” When the market is exuberant, it is responding to the expectation that it will continue to be exuberant. It feeds on those expectations and goes higher. When it expects collapse, it goes the other way.
      Any other questions?

      • Mark says:

        “Any other questions?”

        Maybe why you’re so smug about your own intelligence ?

        • HowNow says:

          My apologies. I got up on the wrong side this morning, didn’t have my coffee when I wrote that, my dog ate my homework… several reasons for why I was shitty.
          Sorry. And I’m not very intelligent. Just trying to keep on keeping on.

  9. Debt-Free-Bubba says:

    Howdy Folks. HEE HEE Told Ya this was gonna take a long time….. Ya ll aint seen nothing yet. Bet the insanity lasts 1 or 2 decades……

    • Bead says:

      Yeah, I saw the latest greatest Wall Street Journal opinion piece: the safe course is to printer go brrrr because o my goodness we can’t have a functioning economy unless asset prices stay high or higher. Sorry, chumps, but you’re in the barrel if you didn’t get yours yet. We’re just happy as pigs in the merde here in New York City. There is NO political option, either; the snow job is accomplished.

  10. Oldpaperboy says:

    Just “higher for looker” folks…

  11. Aman says:

    Reputation if not permanent is also not easy to change. The Fed will have to do a lot more to convince people that they aren’t just there to flare up asset bubbles.

    The Fed has proven that they have a terrible track record of prediction anything about the economy yet it doesn’t stop them from predicting and their track record also doesn’t dissuade investors from believing that the Fed knows everything.

    Really hard to be rational when one is making money :)

    • HowNow says:

      May 17, 2007 — Federal Reserve Chairman Ben Bernanke said that he didn’t believe the growing number of mortgage defaults would seriously harm the economy, …

    • HowNow says:

      In the autumn of 1929, Irving Fisher, a prominent economist at Yale, assured Americans that stock prices had reached “what looks like a permanently high plateau.”

    • HowNow says:

      You better watch out, you better not cry / You better not pout, I’m telling you why: / Santa Claus is coming to town.

  12. Leonardo says:

    The Fed parlor game. It’s amazing how much of the fortunes of millions of people are dependent on the words and actions of a small group of individuals that despite committing huge mistakes are still at their jobs and have faced no consequences for their malpractice. Aside from a few lone voices, Congress has taken no action to review the policy mistakes that lead to the inflation of 2021 to 2022.

    • Warren G. Harding says:

      Congress would need to only look in the mirror.

    • HowNow says:

      What, Leonardo, do you think “Congress” does?

      • HowNow says:

        Compared to Congress and the Supreme Court, I’d give much greater respect to the Fed over any of those scoundrels.

      • Leonardo says:

        No. They think they are gods and that the laws of economics do not apply to the US. But the Fed helps them get away with it. Foreigners do their fair share as well by propping up the dollar and treasuries with their insatiable demand.

  13. Joe Sacramento says:

    I have a hard time reconciling Fed speak and Fed releases. The Fed SEP projected more cuts, raised GDP predictions for 2024, showed inflation steadily falling, and 4.1% unemployment. Basically, soft landing achieved and victory declared. Data dependency language disappeared and the market reacted in kind. A few days later it’s time to temper expectations?

    The Fed knows the market lives and dies with them now. If inflation is the concern, the language should be clear and resolute. Instead, we get the green light from Fed projections and the Fed is confused by tge reaction.

    • Wolf Richter says:

      The median projection in the SEP is for 3 cuts. Markets expect 6 cuts.

      In Dec 2022, all cuts for 2023 vanished from the SEP and were moved out to 2024.

      The Fed is giving market the message that inflation is highly uncertain, and that it has surprised in both directions, and that it can surprise again, and if it surprises to the upside, the Fed may hike again. From Powell on down, everyone at the Fed has been saying that same thing. The markets just don’t want to listen. They prefer wishful thinking. They’ll get it right someday.

      • MM says:


        You know I agree that the Fed isn’t being dovish by anymeans. But at the same time, with the market (fed funds futs etc) resisting the Fed’s message this much over the past few months, I wonder if Powell & Co could choose their wording more carefully.

        E.g. the comments about what they’ll do *when* inflation inflation is back to their target – why even discuss this at all? We’re not there yet. Inflation is still above target. The answer to any question of this sort should be “we don’t know, we’ll cross that bridge when we get there.”

        What if inflation stays above target for years? I feel this is very possible, and that would mean no rate cuts for a long time. Why not mention this when countering the reporters who try to bait Powell into talking about rate cuts?

        These fomc reporters (and the market generally) are acting like children, and Powell is still speaking to them as if they’re adults. If they’re going to act like children, treat them like children. No pudding if you don’t eat your meat. No rate cuts if you don’t stop spending & bring down inflation.

        • HowNow says:

          It’s “no pudding if you don’t eat your vegetables.”

        • Lisa_Hooker says:

          “If you don’t eat yer meat, you can’t have any pudding. How can you have any pudding if you don’t eat yer meat?” – The Wall

        • MM says:

          Glad someone got my reference to The Wall

      • SRK says:

        It was not just the SEP. The tone and how Powell answered the questions was way different than what all those FED Governors are saying now. In Sept Press Conf, Powell used to put lot of disclaimer about SEP and how Forecasts have been wrong and all should take it with grain of salt. This time he didn’t put any of those. Also in Nov when Journalists asked if 10 year yields was doing FED’s job and he affirmed it saying tightening of Financial conditions is how monetary policy works. Well now 10 year has fallen down 100BP thats like 20% from top. So Market has negated the FED’s tightening. Unlike many earlier press conferences, Powell was more inclined towards dovish. Last Press Conference he clearly put down Colby Smith’s (FT) rate cuts question saying we are not discussing that and we are not there yet and premature. This time Powell was saying it is natural to think rates to come down as inflation comes down. I understand many many on Wall St and paid media is misreading Powell. But I respectfully disagree this Press conference. Powell failed this time.

        • spencer says:

          re: “So Market has negated the FED’s tightening.”

          Interest is the price of credit. The price of money is the reciprocal of the price level.

          We may have a “soft landing” (no recession), but interest rates will stay higher for longer.

        • Rob says:

          Fully agree. Saying Powell is steadfast in staying his ground and markets not willing to listen is simply not true. Everyone was able to see what he was saying and how he was coming across at this recent conference. And yet another time his underlings are sent afterwards to clean up after he leaves ever bigger puddle of intelectual diarrhea after he speaks.

        • Wolf Richter says:


          I’m going to cut your sentence into two parts.

          “Everyone was able to see what he was saying” is VERY DIFFERENT from “…and how he was coming across at this recent conference.”

          The first is reading what he actually said, and you can go read the transcript, and you’ll see.

          The second is what the market heard, or wanted to hear, and that’s Goolsbee’s theory: wishful thinking.

      • TrBond says:

        I respectfully disagree with your conclusion that the Fed is stating that the outlook for inflation is uncertain Wolf. And it’s just the market getting ahead of the Fed with wishful thinking.
        I think the Fed is fanning the flames once again with their rhetoric and encouraging the market. They just don’t want it to get out of hand.

        Starting with Waller about a month ago they kept reiterating how much inflation has fallen. And that if inflation falls they can cut rates.
        Powell himself talked about how all the inflation signs ( including service inflation which you have accurately pointed out is rising) even service inflation is falling.
        M Daly just yesterday warned about the risk of job losses if rates aren’t cut.

        I think the market is right, the Fed has caved on fighting inflation.( for some reason, politics?)
        They just don’t want it getting out of hand.

        • Einhal says:

          Agreed. They want to pump up asset prices, but not if they get called on doing so. So they’re going for plausible deniability.

          That said, without new QE, it’ll be hard to keep pumping the market from its current levels.

      • JimL says:

        It is not only the markets. Look at how many posters here kept insisting that the FED had already pivoted and turned dovish.

        I am always amazed at how many people choose to only hear what they want to hear rather than hear what is actually said. They want their biases confirmed rather than actually get it right.

        • 91B20 1stCav (AUS) says:

          JimL – …precisely what has ensured the presence of confidence men and and snake-oil salesmen through the ages.

          “…self-deception is the root of all evil…”
          -r.a. heinlein

          may we all find a better day.

    • Nunya says:

      Replace “we hope” whenever the Fed says the following: we believe, we expect, we think, we project.

      Once you do that, it all makes sense.

  14. John H. says:

    Forward guidance using couched language is damned tricky business.

    • Aman says:

      Would be much better if Powell said “I don’t know”. I guess his job doesn’t allow him to say so.

      The problem is that this unconvincing hawkish/dovish message in the context of two decades of mad monetary policy risks bubbles which will hurt the real economy.

      If we see a deep recession then the Fed’s mandate will also be an area of review and monetary policy decision making will be scrutinized…..maybe for the good. Maybe we go back to rule based monetary policy

      • John H. says:


        This is interesting in context of your comment, and from an unexpected source:

        “Viewed in the abstract, the Federal Reserve System had the power to abort the inflation at its incipient stage fifteen years ago or at a later point, and it has the power to end it today. At any time within that period, it could have restricted the money supply, and created sufficient strains in financial and industrial markets to terminate inflation with little delay. It did not do so because the Federal Reserve was itself caught up in the philosophic and political currents that were transforming American life and culture.

        — Arthur F. Burns, The Anguish of Central Banking, 1979

        • Aman says:

          Thanks for sharing. I loved the article and I agree with the position. Expanding government and social expectations from the government have grown building an inflationary bias. Maybe the Fed is politically independent but not philosophically so.

          Although I have to admit that J Powell has exceed my expectations. I couldn’t have dreamt that he would get policy to where it is today. Definitely a departure from Greenspan, Bernanke, Yellen thinking so far. Meanwhile Yellen has proven she is incompetent at two different jobs and ready for another promotion.

        • spencer says:

          My professor used to read Burn’s correspondence to the class. Burns continued to use Martin’s time horizon – 24 hours rather than 24 months.

      • Mark says:

        “Maybe we go back to rule based monetary policy”

        I personally wouldn’t mind a return to free markets and capitalism …

        • spencer says:

          The U.S. necessarily practices regulated capitalism. Laissez-faire capitalism is a throwback to the feudal era.

          Milton Friedman went too far. We need limited government intervention.

          For example, antitrust actions should be conducted on the basis of the most economical size of plant. That is, limit corporations to a size that would achieve minimum unit costs at optimum rates of output.

          Outlaw the conglomerate and holding companies beyond the first degree, and severely restrict vertical as well as horizontal corporate aggregations.

          That is to say, prohibit corporations from conducting unrelated activities under a single corporate roof, from expanding in order to broaden their share of the market or from controlling their suppliers through ownership or legal devices.

        • Danno says:

          The system is too far gone to ever see that again.

        • John H. says:


          “ …antitrust actions should be conducted on the basis of the most economical size of plant.”

          Are you suggesting that a government committee can best determine the optimal size of a specific manufacturing plant?

          Then they should, I suppose, determine plant location, how many employees, employee compensation operating hours, product design, marketing budgets, financing structure, etc.?

          That sounds efficient. Like Amtrak or the US Post Office…

        • JimL says:

          What is your definition of free markets?

          I would bet a lot of money that using your definition we have never had free markets.

  15. Sean Shasta says:

    “So far, vice chair Williams, Mester, Bostic twice already, and even Goolsbee…”

    Just shows how hard it is to fix things if the job is not done correctly the first time!

    • DawnsEarlyLight says:

      Or how hard it is to apply a ‘fix’ to varying financial currents in dissimilar locations, hardly flowing together.

  16. John says:

    Thanks Wolf,
    Inflation to stagflation? Could be possible. Big debts rolling over soon with even more debt, and to even think of cutting rates. I’m not buying what they are selling.

  17. SoCalBeachDude says:

    Japanese to buy US STEEL…

    • Wolf Richter says:

      I wonder if they have any idea what they’re buying. They should come look at some of those ancient steel plants.

      • FaradayRotation says:

        Out of curiosity, does anyone know how old is ancient in the case of US Steel? I am only dimly aware of their metallurgical tech. All i can find are references to their “old” technology vs competitors running minimills. I can see the advantage of smaller facilities of course; smaller the facility per unit output, the better, but I don’t have a point of comparison to the legacy methodology.

        Knowing the age of their process will give me a sense of just how bad a deal this is. One of the big scientific revolutions which happened in the past ~50 years has been in materials science. Never before have we made so much material in such incredible varieties with very tight specs. This was enabled enabled by computers and subsequent superior metrology techniques, and it has enabled so much without the average citizen realizing it. That means if US steel hasn’t upgraded their underlying process since the 70s or so, then US Steel just sold Nippon Steel a bridge.

        Maybe one not even made of 1800’s cast iron. A creaky old wooden bridge!

        • Wolf Richter says:

          100 years is ancient in terms of industrial facilities.

        • RobertM700 says:

          At least they are buying something instead of just their own stock. Maybe stock buybacks are still illegal in Japan?

        • Wolf Richter says:


          Very good point.

          But share buybacks are common in Japan too and are on track in 2023 to hit or surpass the record established in 2022 🤣

        • Halibut says:

          They’re building a brand new facility in Arkansas. I guess Japan will own it now, if the deal goes through.

      • nefff says:

        I toured a huge steel plant and Fischer body plant in “78” as trade school student.
        The steel plant was HUGE, & they were rolling 4sp firebird TA’s out a running them on a dyno at the end of the GM assy. line, my teachers were retired GM engineers and set the whole thing up.
        Japanese auto engineering + to > than many if not most. Granted the old facility’s are beat up and ugly, but, I would venture to say the overbuilt structures and floors are possibly sound for the most part , no doubt inspected by competent engineers before they laid out $ maybe saved substantial on initial investment. with rail lines, roads & infrastructure right up to the back door.
        build it all out with modern equipment and produce millions of high quality affordable economic vehicles that US mfg.s refuse to build, could it work, am I missing something?

        • Lisa_Hooker says:

          Shutter the plants for now and make money selling carbon credits from not making steel at historical levels. It’s the American way, ask Musk.

    • Nick Kelly says:

      If you want to enter mainline conspiracy theory re US Steel sale go to comments in Zoo Hedge. Example: ‘Japan lost WWII now seeks revenge’
      OBVIOUSLY it is good for US that Japan invests IN THE US to preserve jobs in an antiquated plant that will be upgraded.

      BTW: the world is awash in steel.

      • 91B20 1stCav (AUS) says:

        Nick – sounds like the ZH writer missed out on the establishment of Japanese motorcycle and auto manufacturing plants in the U.S. decades ago.

        (…also makes me wonder about the framing of it in a ‘revenge’ theme – improving world trade in the wake of WWII, with all of its many subsequent (and, admittedly U.S.-weighted) warts, has been a relatively successful effort to avoid drifting again wholesale into that utter horror we, as a species, unleashed upon ourselves. Unfortunately, our memories appear to fade with time and generational succession…).

        may we all find a better day.

  18. SoCalBeachDude says:

    There are certainly not going to be any rate cuts by the Federal Reserve at any time in the near future.

    • Donato says:

      I really don’t dislike a moderate high rate environment for years to come.
      It’s healthier for both parties (lenders and borrowers).
      In all inclusive resorts, the American customers are always drunk at any time.
      We need some discipline!

      • spencer says:

        The numnuts think high real rates of interest reflect a tightening of monetary policy. High real rates of interest encourage savings, which may be channeled into investments.

        High real rates of interest accompanied by a higher money velocity increase the real output of goods and services.

  19. ThePetabyte says:

    Looks they jawboned about cuts a bit too hard

    • Wolf Richter says:

      The only people that jawboned about “rate cuts” at the press conference were the reporters.

      • Between The Lines says:

        2024 will be a good year for stocks. Presidential years are almost always positive in the market, going back to 1925.

        • HowNow says:

          In this upcoming election, with the prospect of a character like Trump being elected, Powell may very well be operating politically, to prevent that from happening. He may be concerned that Trump’s return would usher in rate changes at Trump’s whim and that the economy would get pumped up like his ego.
          Here’s a quote from CNBC:

          2019/10/31 › trump-rails-against a rate hike.
          Oct 31, 2019 — Trump’s blast came a day after the Federal Reserve raised interest rates by 25 basis points to a target range of 1.5% to 1.75%

        • Wolf Richter says:


          Americans HATE HATE HATE inflation. Inflation hits all voters. If inflation resurges, Biden will have a very hard time winning – no matter who he’s up against. Carter was thrown out over surging inflation. Everyone at the Fed knows this. If they want to get rid of Biden, they can just let inflation resurge — maybe Powell, being a Republican, is tempted to do that. On the other hand, if they want Biden to keep his job, they need to make sure inflation does not resurge.

        • Einhal says:

          With all due respect, 2023 is already up like 20% based on the “hope of rate cuts.” Even if the rate cuts do somewhat come, what do you expect another 15-20%? There’s not enough liquidity out there, again, UNLESS the Fed starts printing again.

      • sunny129 says:


        Mkts are marching higher and higher since last Wednesday’s ‘Jawboning’, every day, including today. Jawboning works at least for now, including coming Santa rally.

        Don’t fight the mkt I am riding with some hedges. Until the next inflation number come, Mkts will keep rallying . FOMO is just starting! The power of perception triumphs the reality in this, on going surreal bull mkt.

  20. Bull says:

    I think most investors don’t care about what the FEDs say anymore. Bulls are riding the market in full steam since March.

  21. Dm says:

    If the Fed won’t raise rates because inflation has been subdued as the 2-year is suggesting, it’s time to increase QT and sell some MBS outright. At least as much as they bought monthly in 2020-2021.

    I remember Wolf saying that $6T is the new floor for the Fed balance sheet (up from $4T before the pandemic) and at the current rate, it will still take 2-3 years.

    • shangtr0n says:

      The Fed hasn’t given any indication that it has any plans to sell MBS, nor is it at all likely to. Note that “patient” is one of the words Bostic used, and it would behoove us all to keep that in mind. Getting inflation under control without breaking things is the goal here. Those of us who believe the market is getting out ahead of its skis have two choices: we can short it, if we have the fortitude (I don’t), or we can wait.

      Remember: “nothing goes to heck in a straight line” (credit to Wolf). But reality always sets in eventually.

      • Einhal says:

        I don’t understand why not breaking things should be their goal. I would love to see them break things, so America can finally learn some austerity and lessons.

        • shangtr0n says:

          I’d love to see America learn those things too, but I think we’d learn the wrong lessons if things were to break right now. The financial press would surely blame the recent hikes and QT, and most would lap up this simplistic cause/effect argument.

          Boiling the frog is the way forward.

        • HowNow says:

          You’ve expressed it well, shangtrOn. I agree. But there are folks here who have fanciful ideas of what would follow if things “break”. Like, everyone would become sober, take quiet walks to smell the fresh air and watch the birds and bees. Total fantasy about the nature of human behavior when push comes to shove. They live with fictional ideas about the way things “should be.”

          More likely, though, is a desire to cash in on a chaotic collapse.

        • Einhal says:

          HowNow, no, I have no interest in profiting.

          But ultimately, I want immigration to the U.S. to stop, and I want a return to constitutional conservatism. The way that happens is if people are angry that they’re being put in an economic bad place.

          The sooner the collapse happens, the sooner the nativists come out.

        • HowNow says:

          The real nativists are the American Indians, not you.

        • JimL says:

          That sounds like a you problem. I think it is rather obvious why it would be good idea to try and nit break things.

          However you think it is a good idea to punish people because you failed to correctly read the tea leaves for the past 30 years.

        • Einhal says:

          I’m 33, so I’m not sure how I could have been misreading tea leaves for 30 years.

      • Lisa_Hooker says:

        I have noticed that “real” reality appears to set in every two to three hundred years. Too long a timescale for most traders.

      • sunny129 says:


        Right now, the power of perception over taking and triumphing over the reality of rational explanation. Those waiting for recession, can keep murmuring about nothing goes up in straight line. But Mkts have marched higher every day (including day) since last Wednesday . Just wait for the FOMO for the next 2 weeks!

  22. Swamp Creature says:

    David Stockman came out big time against rate cuts. I agree. Just when savers started getting a positive return after inflation, JP decides to cut rates and screw savers again like he did before, in order to boost Wall Street and help his rich buddies get richer. JP doesn’t care about the average middle class worker. He needs to submit his resignation. Not today, not tomorrow, but rather YESTERDAY!

    • rojogrande says:

      I’m a saver and very sensitive to being screwed. That said, JP hasn’t decided to cut rates yet. Rates were left unchanged.

      As for submitting his resignation yesterday, given the alternative options for Fed Chair such as Lael Brainard, I’m not sure any would have hiked as aggressively as JP has. JP’S made numerous mistakes but I doubt his replacement would have been any better.

      • Swamp Creature says:

        “given the alternative options for Fed Chair”

        There are plenty of good replacements for JP out there. He’s been in there 4 years and has failed at every turn. His speeches are boring and without substance. Just reversed himself in the last 2 weeks. Time for him to stop worrying about the homeless tents on the way to his job on Constitution Ave and get the hell out of Washington, and don’t let the door hit you on the way out.

        • rojogrande says:

          I’m being serious. Can you name two people to replace JP who are both an improvement and actually have a chance of being appointed and confirmed? I’ll take relatively aggressive policy and boring speeches every time, but perhaps I’m missing a viable alternative.

          Finally, how did JP reverse himself in the last 2 weeks? The SEP dot plot is a compilation of all 19 members of thee FOMC, so that can’t be his reversal.

        • Swamp Creature says:

          J Powell reminds me of the current couch of the Washington Commanders Football team. He’s been there 4 years and has a losing record every year. The team is worse than when he got here. The new owners of the team have told him to pack his bags and get out of dodge. Good move! The same should be done to J Powell.

        • HowNow says:

          I think the Commanders made a serious mistake when they hired a couch instead of a coach. That may explain it.

      • John H. says:

        I hereby nominate James Grant.

        Perhaps, like Grover Nordquist, he can wrestle it down to a size where its small enough to drown it in the bathtub!

        • HowNow says:

          Has Nordquist EVER said what would follow once the government is drowned? Colorful rhetoric. As I remember it, Republicans were adamantly opposed to anarchists. What happened?

        • John H. says:


          Banking subsidization and economic planning via monetary machinations have become uni-party problems, IMHO.

          I apologize if tying Grant’s skepticism of the modern Fed to Norquist’s quest for smaller government offended your politics, and will try to be more sensitive in future posts.

          I am unaware of opposition to anarchy but will look into it….

        • HowNow says:

          John H., as a former Republican and an old one at that, I remember the fear that the hippy generation inflicted on conservative sensibilities. Hippies and lefties were considered anarchists. No constructive alternatives to what they didn’t like, just universal love and flowers.
          With a backdrop of the Vietnam War and a multitude of lies from the highest levels, much skepticism was warranted, imo.

        • spencer says:

          Ha. Grant thinks Lewis Lehrman’s work was immaculate. Dr. Leland Pritchard dismantled it.

        • JimL says:

          Your first problem is listening to anything Grover Nordquist has ever said. You really need to find better people to follow and listen too.

      • Aman says:

        The problem is less with the person but the mandate of the Fed.

        How can the same organization manage maximum employment and stable prices. Here are some problems I can see

        1. Both mandates require totally different monetary policies :)
        2. Who will decide what maximum employment is?
        3. Is low CPI sufficient?

        Their mandate doesn’t care about asset inflation (specially if broad based, unsustainable and decoupled from on the ground economics), rapid credit growth (leading to financial crisis) or income and wealth inequality.

        The madness of the goals has likely caused several distortions in the US economy and society.

        Ideally they should have a very simple goal…..steady increase in money supply. Likely need 20-30 people at the Fed to achieve this goal. With that constraint fiscal policy should be the response to crisis.

        That is the Fed we had for a long time until the maestro was recommended :)

        • John H. says:

          Amen, Aman!

          Your prescription sounds faintly similar to the late 19th century relic of a world financial monetary system, which system accompanied the historic rise of US wealth and power.

          (I won’t name the system for fear of backlash and ridicule…)

          Suffice it to say that SOME form of discipline is a vital ingredient to the sustainable operation of a monetary system. That the current debt-based, committee-run fiat system is lacking in discipline was on full display in Powell’s presser.

        • rojogrande says:

          I agree with you the Fed’s policy framework should be changed. However, my comment you’re replying to wasn’t addressing that issue. I was replying to a comment that asserted Powell should resign “YESTERDAY” based at least in part on the factually incorrect assertion “…JP decides to cut rates and screw savers again like he did before…”

          We’re all entitled to our own opinion, we’re not entitled to our own facts.

    • spencer says:

      Powell didn’t produce real rates of interest until May of this year (based on the 10yr Treasury and CPI-U).

      What screws saver-holders is interest rate suppression (QE).

  23. JOC says:

    Maybe there is some way sharp-eyed, word-parsing Fed watchers can justify recent communications, but the rest of us are scratching our heads. On Dec 1Powell said talk of cutting rates was “premature.” A few weeks later Powell gives guidance to expect three rate cuts in 24. (what happened in those 2 weeks, btw?) The market, predictably, goes wild. Then a couple of days later Williams and the others try to tamp down the fire they created.

    This doesn’t inspire confidence.

    • Pea Sea says:

      “Powell gives guidance to expect three rate cuts in 24”

      I hate to defend him, but that’s not what happened. The dot plots are an aggregation of all the individual participants’ expectations for rate movement in the future.

    • rojogrande says:

      The SEP isn’t guidance from Powell. The SEP reflects the individual opinions of the 19 members of the FOMC about policy rates at various times in the future. Eight of the FOMC members don’t even vote on policy decisions. We don’t know which of the dots on the SEP reflect Powell’s opinion, or the opinions of other voting members. Nothing discernible happened in those 2 weeks.

      • JOC says:

        Thank you. I appreciate the subtleties of your argument. Still, judging by the market’s reaction, I think I have some company in feeling confused. One man’s view: the FED could benefit from a few market people around the table. I have a dear friend who is an economist with degrees from the best schools….and he is clueless about markets.

        • John H. says:


          “I have a dear friend who is an economist…”

          One of my favorite economist joke (and there are several) is:

          “Where five economists are gathered together there will be six conflicting opinions, and two of them will be held by Keynes.”

          —Thomas Jones, A Diary with Letters (1954)


        • rojogrande says:

          I understand. I have an older brother who’s an economist with a PhD from an elite school, and I have long thought he’s clueless about many things. Though I’m sure he feels the same way about me.

          In this case, I think the market was looking for a reason to continue rallying, and it wasn’t actually responding to Powell or even the dot plot. As Wolf has noted, the market is pricing in 6 rate cuts in 2024. The market is actively ignoring both Powell and the dot plot.

  24. Pea Sea says:

    Has it occurred to them that they wouldn’t have to keep doing this if they figured out how messaging worked, and acted accordingly at meeting time? Anyone with half a brain could have seen how markets would react to the revised dot plot and to all the mutual back-patting at the press conference about all the great progress on inflation.

    • HowNow says:

      Heavy on the optimism, light to non-existent on pessimism. How would a fifth-grader interpret that??

      • Jon says:


        Your comments are mean and spiteful and have nothing to do with many of the topics at hand.

        When I see your name, I will skip what you say because your comments have been provably irrelevant.

        • HowNow says:

          Here’s a comment from Einhal:
          “The point is that these criminals wanted the market to react the way it did, so that they could make short term gains by trading the market.

          They’ll pull the rug once their friends have made their profits.”

          And you think I’m spiteful and mean? I must have said something you thought was spiteful and mean.

    • JimL says:

      Their messaging is just fine. I am surprised at how people have actually read the transcript of what Powell has said. It isn’t the messaging, it is people hearing what they want to hear.

      Powell: I will be home by 8:00 tonight, maybe even earlier if things break right, but 8:00 pm is the goal.

      Reporter: What if a meteor hits and the cloud of dust thrown up closes all roadways and you get stuck at work.

      Powell: Well if that happens, I probably won’t be home by 8:00. I am sure I will be delayed.

      Headlines: Powell days he will be home later than 8:00 pm.

      • Wolf Richter says:

        “Headlines: Powell days he will be home later than 8:00 pm.”

        WSJ’s Nick Timiraos headline: “Powell in marital crisis, refuses to go home.”

  25. Nick Kelly says:

    To repeat, this ‘dot plot’ thing is wacky. No other major CB does it. Why issue a smorg of tea leaf readings that we know the market barkers will cherry pick as gospel prophecy of the future? The fact that the damage control team has to take a fire hose to the market reaction should maybe suggest not plotting your dottiness in the first place.

    It’s a recent development, as I found out briefly researching it. I was unable to find out whether the final decision on the actual change is decided by majority vote or whether Powell decides or…

    • MM says:

      Also consider: being released only 4 times a year, the most recent dot plot becomes out of date fairly quickly. Powell himself admitted this.

      What’s the point of including it at all? If markets aren’t going to use it correctly, take it away, like you take away a toy from a child.

      • Einhal says:

        The point is that these criminals wanted the market to react the way it did, so that they could make short term gains by trading the market.

        They’ll pull the rug once their friends have made their profits.

        • HowNow says:

          And your real evidence for this prognosis???

        • Nick Kelly says:

          Zero. Worthy of ZOO-H

        • JimL says:

          You calling them criminals says more about your own life failures than it does about them.

          Take responsibility for your own decisions. Stop blaming others.

        • Einhal says:

          JimL, they are criminals. They print money to seize wealth for the boom generation.

          Robbery without a gun is still a crime.

  26. Cold in the Midwest says:

    Nice article Wolf. The mainstream financial media is CONSTANTLY eager to interpret anything and everything the Fed says as a sign of a potential rate cut.

    They know that will trigger a rush of purchasing transaction activity as FOMO (and the lust for fast capital gains profit) kicks in yet again. These short-term purchasing stampedes are very good for the financial management clients who advertise on their stations, web sites and/or other media.

    Not so good for the naïve people who believe it simply because they saw it on television. I pity those who make financial decisions based on MSM content.

    • HowNow says:

      It isn’t limited to “mainstream media”; at least they’re predictable. Who knows what’s being circulated elsewhere.
      But to fault them for interpreting… that’s like saying that farmers are in a rush to reseed their farm once they’ve had a harvest.
      If the mainstream media sent out headlines like, “We don’t know what’s coming next. Stay tuned,” they’d be SOL.

  27. dtj says:

    I’m sorry, but the Fed wants to have their cake and eat it too. They’re the ones who dropped the hint that they’ll be cutting next year.

  28. Thomas Curtis says:

    The stock market is not monolithic. Traders love up and down. Even within traders there is large variance; day, swing, momentum,…

    Other than the magnificent 7 valuations throughout much of the market are not extreme. The market is broadening. Industrial policy, AI (labor efficiency), earnings, and money in money markets that will be looking for a new home as the Fed cuts will all drive this market higher this year.

    Mind, if valuations get too stretched and the fed screams we will have a correction but traders will love that. They make money either direction and overall find it easier down…

    For 2024 up 10+% baring black swans.

    • Einhal says:

      Except that the magnificent 7 is 30% of the S&P.

      “Other than that unfortunate incident Mrs. Lincoln, how did you enjoy the play?”

      • Thomas Curtis says:


        Do you have decent equity investment experience? You have never express it. What is your current investing strategy?

        From all of your comments I have to conclude that you are a permabear with no skin in the game, a noise maker.

        Please explain your investment strategy.

        • Einhal says:

          My strategy is care about valuations. I put most money into the S&P, cashed out some of it when it hit 4,300 or so in the summer of 2021 and I thought valuations were stupid.

          I put that into short term instruments, and most of that money is in t-bills or CDs today.

          New money goes into t-bills (except for my 401k contribution, which goes into target funds).

          I won’t buy stocks at today’s valuations, no matter how much more ridiculous they can get.

        • MM says:


          Not Einhal, but I want to jump in here.

          Respectfully, I’m constantly scratching my head at what makes you so bullish. I’m not all doom and gloom, but I think most assets (stocks, housing, & crypto specifically) are waaayyyy overvaled and due for a correction. The lack of breadth

          For the record, I know how to make money in the market. Most years I outperform the S&P. I made 3% in 2022 when everyone else lost money. I made 12x on AMZN in the 2010s, thanks in part to QE and artificially low rates.

          But things are different now. I’m 75% T-bills, 20% shorts (against housing & TLT), and 5% one single stock (a microcap oil producer that trades OTC; currently pays a 15% dividend and I own the shares for next to nothing).

          I just don’t see how this bubble can inflate much larger. Think about it: you can make 5% risk free. Are you that sure that you can make that much more in risk?

          JP morgan once said “I made my money by selling too soon” and that’s my philosophy right now.

          High rates & high inflation is a /fundamentally new investing paradigm/ and mkts still have yet to digest this. Being bearish doesn’t mean you hate the world, its just a realistic appraisal of the current financial landscape, imho.

          I guess time will tell who ends up being right.

        • MM says:

          Einhal – huh sounds like our strategies aren’t too different.

          Have you looked at what’s in your target date fund? Its probably just an S&P index fund.

          I recently persuaded my HR to let me do a self-directed 401k, so I wouldn’t be forced to keep my money in those crappy funds. Now my 401(k) contributions go right into a MMMF.

          If long bond rates go back above 5% I’ll nibble on those; being in my 401(k) I’m comfortable holding them till maturity.

        • Halibut says:

          MM, I’m curious about that. Even if you get 5% on a long bond, at the end, you get back highly devalued principal.

          I’m in short term Tbills right now, but I’m skeptical about long term bonds even if the rate sounds good.

          At higher rates, I might go out 5 years but not much longer.

          Maybe I’m missing something here, but long bonds scare me.

        • HowNow says:

          In defense of Einhal, check the ratios that Robert Shiller posts which include price/earnings, price/sales, etc. over long periods of time. The only times that these ratios have been higher than they are now is 1929 and 2000. According to ECRI, worker productivity has been on a steady decline. Trees don’t grow to the sky.

        • MM says:

          Halibut, here’s my rationale:

          Bond traders only lose money by selling before maturity. But I can’t touch my 401(k) for at least that long anyways.

          Sure the principal is devalued from inflation – but so is everything else. And if the stock market is at a generational peak, and trades sideways over the next decade or two, I’d rather collect the interest and at least try to keep up with inflation.

          I already have a 10-year, 5% CD in my 401(k) along with a ladder of shorter maturities.

        • JimL says:

          Let me qualify this by saying that I think the market as a whole is overvalued. I also have a greater percentage of my assets is cash (actually money markets, but close enough) than I ever have had.

          That said, you don’t have to buy the market. You can buy individual stocks. There are plenty of stocks out there that are not overvalued. Sure, these stocks will probably drop if there is a huge market correction, but no one knows when that is coming and those individual stocks will do much better than cash (or bonds) during the time you are waiting for the market to crash.

      • Thomas Curtis says:


        I am not always a Bull. In 2022 I went heavily short in Jan and stayed short all year and in to 23. I had my best year ever. It was obvious to me in Dec 21 that rates would have to go up to control inflation. I expected a recession but I am glad it didn’t come. I hate those things.

        This year I started buying when the Fed started hesitating on hiking around 5% and inflation had come down a lot, say June-ish. I finished buying when the Fed held for a second time (and then the Santa Claus rally came). I have had a good year.

        I am bullish now because those industrial policy bills passed last year are $2T over 10 years. They explain all of the manufacturing construction and construction in general which is going to boost U.S. equities for decades.

        Inflation has come down a lot and I think it will slowly continue down and allow the fed to begin cutting modestly this year which will gradually move money out of the 5% money markets and into equities supporting the bull case.

        I don’t expect a recession.

        Markets are broadening which is healthy.

        I think the earnings will be good for many companies in 2024. Not the zombies but most of the well managed companies will do well. Borrowing costs are likely to be falling.

        AI is starting to improve efficiencies and this is going to be a big driver for decades.

        Quantum too is coming. Probably by 2030 we will have conventional computers merged with quantum computers for different tasks. Again, more efficiency.

        I took some losses early in the year because I did not get out of my shorts from 2022 soon enough. So, today I sold all of my U.S. listed winners that I have bought since June to balance those losses and get the gains since June into cash with no tax consequences.

        I expect to be buy all or most of these stocks back. Hopefully after the market does some tax selling. Hopefully for less than I sold them for but regardless I will buy them all back with a higher cost basis that will lower future taxes.

        Finally MM, I can sell everything in a heart beat. I am not married to my ideas. I am retired and have time to watch markets closely now and I enjoy the sport of it.

        I hear all these people on here griping about the fed, how they can’t buy a house, how equities are outrageously priced (not so bad if you pull out the magnificent 7) and I can’t see it! Of course I got out of high school 1975 when things were so tough that we thought Disco was fun!!!

        I really am optimistic. U.S. equity markets are in a sweet spot like I haven’t seen since the 80s and 90s. There is nobody in the world keeping up with U.S. tech. We are bringing factories home or nearer. Everybody has a job. The Fed is happy with the way things are going. I couldn’t ask for more.

        • Einhal says:

          With all due respect, I think you’re in a little bit of a bubble. Things might be great for the top 5-10% (and especially of your generation, that had everything handed to them on a silver platter, but I digress), but the mood among the younger people, even those have a job, is very sour. If the economy was so great, more than half the people wouldn’t disapprove of the president.

          You mention AI. AI has the potential, if it’s what it’s cracked up to be, to put a lot of people out of work. This, combined with the current political climate, has the potential to be the spark that ignites the powder keg we’ve been siting on for decades.

          Broaden your horizons a bit.

        • Nick Kelly says:

          TSMC is the leader in chip fab and looks likely to hang on to that title. However the thinness of the wafers is approaching the practical limit if not the theoretical limit via unwanted electron migration.
          The information storage in DNA, being stored at the atomic level, is at the theoretical limit.

          Of course progress will go on, but as one example of the low- hanging fruit being gone, note aviation. In its early years it advanced with amazing speed, spurred on by wartime demands.
          All this progress fed into civil aviation, leading up to jet propulsion, which also evolved.

          But if you fly commercial today you will fly at virtually the same speed as over 50 years ago, about 500 mph. Concord could double that but so streamlined it only seated 100 and half the take off weight was fuel. There have been dreams and schemes of a new SST ever since, but right now it looks likely it’ll be about 500 mph 50 years from now.

        • MM says:


          I appreciate you taking the time to type out your rationale. I like hearing different perspectives.

          For me, there are two big macro themes which are the elephant in the room: deglobalization/mercantilism, and the USG debt.

          The former is inflationary on a structural level – nearshoring/friendshoring will result increased input costs. Also consider the implications of ocean freight having to go around the horn of Africa, due to tensions in the Red Sea.

          The implications of the latter are simple: the Treasury’s increased need for funding will be a liquidity drain, and USTs will compete more and more for investor funds, crowding out investment in other areas such as the stock market.

          I don’t expect a recession either – but feel there’s a good chance the markets trade sideways for the next few years, and in that scenario I’d rather sit in treasuries and collect the interest.

    • Jon says:

      I think next year may be 15 percent or more up.

      I was short in 2022 and made 17 percent.
      This year I am long and up 25 percent.

      I mostly deal with tech stocks.

      2024 no idea but I think fed has my back and other speculators.

      I am not smart but just got lucky and then I try to read what fed would do.

      I don’t think fed would ever abandon asset holders.

      • Einhal says:

        The only way the Fed can have your back going forward is to start printing again. Lowered rates alone won’t do it.

        • mirko says:

          What if they cut by a 1/4 point in q1 but cut interest on reserves by a 1/2 or full point, and then walk away until after the election. That’s a lot of cash that’s currently sitting around earning easy easy money. Lot’s of ways to goose this thing unfortunately.

  29. grimp says:

    What/when for the “full effects” of tightening?

    • Thomas Curtis says:


      My guess is no time soon. Maybe the first cut in May? Nothing after Aug until Nov 4th for obvious reasons. It is all dependent upon inflation {excluding exogenous events (war, banking crisis,…) and or large drops in employment and fear of recession}.

  30. Jackson Y says:

    There’s no way FOMC members, who consist of the brightest minds in academia & industry, couldn’t have foreseen this market reaction in advance. Both the equity & bond markets ALREADY went parabolic in November before they added even more fuel to the fire.

  31. Mark Thompson says:

    This is a total clown show…as an ex-Director of Corporate Marketing in a Fortune 500 company, I can assure you they are doing this deliberately…there’s simply no way they are this incompetent in terms of communications/messaging. They want the financial easing but then run cover 3 days later with the ” you misunderstood us” baloney. Nobody believes the Fed…I don’t wonder why!

    C’mon Wolf, you gotta admit that this is just a bit ridiculous!

    • Wolf Richter says:

      Back when dirt was young, I was teaching Business Communications at the University of Texas at Austin. There is one thing that I hammered home in every class, and if there was just one thing they got out of this class I hoped it would be this: “If the people you’re communicating with misunderstand your communication, it’s your fault.”

      I have been watching these press conference, and it’s a true clown show. I’ve said all year that Powell needs a Taser under his lectern, and when he gets stupid or manipulative question, or a question that puts words into his mouth or whatever, he pulls out the Taser, aims, and ZZZZAPPPP, and “Next question.”

      On a more serious note, the Fed should just abolish the press conference and the dot plot (the dot plot doesn’t translate into reality anyway), and just publish the policy statement, the implementation materials, and a SEP with median projections for GDP, inflation, and labor market metrics. Then they should take questions submitted electronically, and post on the Fed’s site their answers to 15 of these questions of their choice.

      • All Good Here Mate says:

        Yeah but then Fox Business, Bloomberg and CNBC will have to come up / pay for actual programming.

        There’d be sooo many talking heads out on the street. That’s just harsh, making them only report facts and stuff.

      • Pea Sea says:

        While they’re abolishing things, they should think about discarding or at least curtailing the whole post-GFC concept of markets being entitled to constant forward guidance. It seems to keep the Fed from being as nimble as it could be in response to data, and the markets are no good at interpreting it anyway.

        • Wolf Richter says:

          Agreed. Forward guidance has caused some really big problems, such as the forward guidance in early 2021 that rates would stay at 0% for a long time, despite surging inflation — Powell eternalized this with his “we’re not even thinking about thinking about” rate hikes.

          As a result, banks — believing in the forward guidance that rates would stay at 0% despite inflation — loaded up on long-term bonds and failed to hedge against interest rate risk on the eve of the biggest rate hikes in 40 years, and several have now collapsed. The Fed should just STFU and surprise everyone with its moves, and then explain the moves after the fact.

      • nefff says:

        Back when dirt was young, I was teaching Business Communications at the University of Texas at Austin…
        wow it makes so much sense now.
        A while back I commented that every time I read WS I feel like I just had a learning experience.
        You should have an ongoing podcast , Business, finance & money for idiots (like me). Explain it like you are teaching a 9th grade class. Sure all the know it all’s will will ignore or mock, but, the youth and less educated among us could be enlightened and benefit for the rest of our lives .
        I would be the first to sign up. The way you explain things in your comments like its a classroom Q&A in here would make it a true learning experience. my $0.02 worth.
        Just for kicks you could stand at the podium with a stun gun. some of us probably benefit from a good 40k volt shock too…

      • kpl says:

        “If the people you’re communicating with misunderstand your communication, it’s your fault.”

        If it is a question of misunderstanding this is true. In this case it is not. It is a case of hear only what they want to hear or purposely misinterpret or purposely misunderstand. Taser or no conference are the only ways to contain such mischief makers. Another benefit – Either way soon you have lesser number of them.

      • Aman says:

        I think that is an excellent idea to do away with the press conference and Q&A sessions.

        But that would lead to lower volatility and I would hate that as an investor but would be good for society.

        Almost everyone I meet for dinner is talking about the Fed. This is totally insane. Almost as if 7 billion people in this planet are puppets at the Fed puppet show. People with no knowledge of economics or monetary policy are talking about what the Fed is doing or aims to do.

        One can argue that this is the most powerful office in the whole world….has been the cause of panics and maybe cause wars some day.

    • Einhal says:

      I agree. They wanted everything that’s happened over the past 3 years. 25% of the debt (nearly all of the pandemic splurge) has been inflated away, there is a new floor under asset prices for their rich masters, and the average American who is young is screwed.

      That’s the way the Boomers in charge always wanted it.

      • Concerned_guy says:

        What they have done is reward the reckless and punish the financially responsible. The more debt you took the more ahead in life one came out so far…. housing is one example…..

        this is just crazy…

        what is the most disappointing thing is that people whom you expect to understand that this is not correct, are the ones for some time now supporting it.

        I guess when they or their loved ones will one day walk in others shoes then only they will understand the it.

        • JeffD says:

          And now, as a result, we are seeing “Act your wage” and “Quiet quitting”. We are in the midst of Soviet style decay. As ye sow, so shall ye reap.

      • Gattopardo says:

        “That’s the way the Boomers in charge always wanted it.”

        That’s become the most ridiculous and tired line. Right up there with the mistaken belief that median incomes should be able to afford median homes.

        If you’re ever critical of the divisive left/right tactics and statements out there, you may want to rethink your generational comments because they’re no different.

        Damn millennials! ;-)

        • JeffD says:

          There is a big difference between median income not being able to afford a median home, and one standard deviation above the median *household* income not being able to afford a median priced home. We are now in the latter situation in some states. It is not a sign of a healthy economy. As little as 60 years ago, the USA used to serve the needs of its populace, not just a class.

        • Einhal says:

          The fact that my statements like this always strike a nerve proves to me that I am right. Median incomes should be able to afford median homes. People who bought houses in 1982 for $25,000 aren’t brilliant investors who have a god given right to have the government protect their “investments.”

        • Herpderp says:

          Einhal, its pretty simple:
          Good times make weak men
          Weak men make bad times
          Bad times make strong men
          Strong men make good times

          Only a matter of time before the weak men age out of the equation and the strong men can fix the mess they made.
          The greatest generation made the best times of all, and the weak men it bred never had the foresight or intelligence to understand that no one else had it as easy as they did.
          They wonder why the median age of first time home ownership marches ever upward. They wonder why no one is having children. They shout “no one wants to work anymore!” while prime age labor participation rate is 15 points higher than it was in the 70s. They wonder why the children they told to go to college took out student loans. The failed policies of the country are a direct product of their leadership and endless greed. Cut the median age of congress, the SCOTUS, and the executive branch by 30 years and all of these problems would be resolved in short order.

          History will not look back kindly on their legacy of rot.

        • Einhal says:

          Herpderp, very well said.

          If I have to hear one more idiot blather on about how they paid 11% on their first mortgage, I’m going to scream.

        • ApartmentInvestor says:

          @Einhal in 1982 the last of the C3 Corvettes cost $22K and a Porsche 911 with some options cost $32K. Where were people buying homes for $25K in 1982 (that didn’t need a ton of work)?

        • TookTheBait says:

          “What we’ve got here is failure to communicate—some men you just can’t reach. So you get what we had here last week, which is the way he wants it. . . well, he gets it. I don’t like it any more than you men.” – Cool Hand Luke (1967)

          Take a ride through time on YouTube and you’ll find song, after song, deriding the same fact throughout each generation.

          Try to stop thinking generationally, systemically, or whatever compartmentalized method you have found to assign simple blame for the way things are. If it was that simple the FED wouldn’t exist, or they wouldn’t need to take action, or they would have already stuck this landing.

          Think about why a house in the 70s cost 15K and an individual could afford it. Then think about how we adopted the term “household income” and how the price of houses doubled. What role did the notion that everyone needs to own a house play in today’s prices?

          For your dismissal,
          I’m a GenX

      • Nick Kelly says:

        All debt including the US govts, is still there and has become much more expensive to service. Most US govt debt is long, and so it has time. Most commercial RE debt is short and so the industry is in trouble.

        • Mark says:

          “If I have to hear one more idiot blather on about how they paid 11% on their first mortgage, I’m going to scream.”

          Mine was 10.75%

      • Depth Charge says:

        Exactly. What’s 25% inflation to wealthy pigmen when they steal money from taxpayers to increase their own net worths by 200%+?

        The FED is a criminal cartel at this point. END THE FED.

        • Mark says:

          Depth Charge – re “End The Fed”

          Exactly Just ending the press conferences does nothing to eliminate these predators.

        • JimL says:

          Just so I can help you stop sounding like an idiot, I will ask you a question:

          What crime have they committed?

          You will do much better in life if you don’t get so angry at things you don’t understand and instead invest effort in learning things and expanding your world.

        • Depth Charge says:

          Triggered, huh JimL?

          What a tool. LMFAO.

        • Depth Charge says:

          But anyway, moving beyond some triggered speculator’s hurt feelings, the FED’s MANDATE is stable prices, yet they have completely gone against that mandate and actively pursued an all-out effort to create soaring inflation.

          As others have mentioned in this thread, the supposed firefighter is the arsonist. When a firefighter in real life turns out to be a fire bug, he is immediately terminated and arrested.

          The FED has proven that they were actually doing the exact opposite of what their mandate calls for, and they were personally financially profiting off of it, with active board members day-trading and front running those decisions that were in violation of their mandate. That is fraud and corruption at the highest level, not to mention treason.

          Put that in your pipe and smoke it.

        • Happy1 says:

          DC for President!

  32. Jackson Y says:

    Also, markets don’t care about the recent damage control (if anything, they’ve climbed even higher) because they’ve already heard what they wanted to hear: a confirmation that lower inflation is the only necessary condition for rate cuts, no recession needed. Even if the exact timing differs, as long as inflation continues trending down, the rate cuts will come.

    While I understand there’s a perspective that real rates matter, that steady rates amid falling inflation represents further tightening, etc., this is a major policy change from recent cycles like 2000 & 2007, where peak rates were held steady until recessions arrived.

  33. Bs ini says:

    Glad they came out and said inflation headed in right direction which must be happening though rents and medical costs seem to be rising. I think I read the latest ibond from treasury for sale has a 1 percent minimum this time. My purchase timing is Jan for my annual 10k

    • Thomas Curtis says:

      That 1%, is that supposed to be close to the real rate of interest? Real + inflation = equal neutral. Wolf, your comments would be most welcome on real and r-star.

      • longstreet says:

        back in the day….
        the implied neutral rate was inflation plus a little to handle the tax hit …
        the mission then was to make certain that holding dollars, ie saving, did not hurt those who did so.
        That all changed in 2008 when the game became “knicking” …. “slicing” money off those who held dollars.. and it persists today, despite this respite in which rates, for the moment, exceed the posted inflation rate. That “coverage” is not even close to covering the damage done to dollar holders over the past 14 years.

  34. Mike R says:

    As long as stocks are going up, Biden is happy. As any incumbent would be.

    • Wolf Richter says:

      Biden cares less about stocks than Trump did. Trump publicly took ownership of the Dow and keelhauled Powell on a daily basis over the rate hikes at the time and the little bitty QT that the Fed was doing in 2018 as stocks tanked.

      • Einhal says:

        This is true. However, the mainstream media cheerleads with the idea that the stock market is a good barometer for the economy and for Americans’ feeling on the economy.

        It isn’t. Not at all.

        • eg says:

          I often disagree with you, but on this you couldn’t be more right.

        • HowNow says:

          If you dial back to 2005 – 2007, the cheerleading was over increasing home values.

        • Matt B says:

          Agreed. I’ve even seen some rebellious right wingers argue that the stock market isn’t benefiting the country anymore. American Compass has a debate on YouTube about it. At this point all it’s doing is draining resources and causing chaos.

      • longstreet says:

        I remember that well….. and really was at odds with Trump on this.
        It was December and the Dow quickly had lost 5K in a few short weeks.
        Powell had taken rates up to 2% to meet the then inflation rate of 2%.
        Trump went nuts.
        Powell caved.

      • Swamp Creature says:

        The stock market hit a peak in late 2007 well after the housing crash and mortgage meltdown was well under way. Bear Sterns was going under at the same time the stock market was making new highs. The stock market no longer reflects the underlying economy. It’s become nothing but a casino.

        • Einhal says:

          My peers often ask me why I say I find the stock market so uninteresting.

          It’s because it’s all based on algorithmic trading and Fed liquidity (or the perception of such). The underlying companies and economy has nothing to do with it.

          To me, it’s as interesting as watching people play blackjack (not at all interesting).

      • Depth Charge says:

        That’s when I decided I’d never in a million years vote for DJT for re-election. Further, he was talking about “negative rates” and also calling for massive stimulus checks, etc. Really gross behavior.

  35. Dog Whistle Feds Stay Calm says:

    There’s something happening here
    But what it is ain’t exactly clear
    There’s a man with a gun over there
    Telling me I got to beware
    I think it’s time we stop
    Children, what’s that sound?
    Everybody look, what’s going down?
    There’s battle lines being drawn
    Nobody’s right if everybody’s wrong
    Young people speaking their minds
    Getting so much resistance from behind
    It’s time we stop
    Hey, what’s that sound?
    Everybody look, what’s going down?

  36. Andrew P says:

    Meanwhile, the front page of the WSJ: “Fed Official Says Rate Cuts Could Be Needed Next Year to Prevent Overtightening”. It talks about Mary Daly, who is not a voting member (though she will be next year) and does not even mention Williams, Mester, Bostic or Goolsbee.

    Before reading Wolf I probably wouldn’t have even noticed these sorts of headlines, but now that I do it’s pretty jarring.

    • Wolf Richter says:

      Daly is on the very same page of the four I cited. I would have included what she said, but her interview was published hours after my article was published.

      In this interview with the WSJ, Daly said that she is in line with the SEP’s 3 cuts in 2024 — not 6, as the markets are betting — IF inflation continues to drop.

      She tried to douse those rate-cut fires, just like Goolsbee and the others. The headline didn’t reflect that though, what else would you expect from the WSJ? You have to read the article and see what Daly actually said.

      She also said, like the others: “There is more work to do, and at this point, that work includes not only focusing on bringing inflation down to 2%… but also recognizing that we want to continue to do this gently, with as few disruptions to the labor market as possible.”

      There will be more to come out and say, look folks, forget six cuts, not gonna happen. We may cut if inflation continues to come down, but not that much. For them, it’s all about inflation, and they say this every time: if inflation turns around and surges again, all bets are off, that’s what they’re all saying, including Daly.

      • JeffD says:

        Three cuts would be four cuts from the CBO, since one hike was penciled in that never occurred. Lol! And people wonder why traders and brokers have trouble understanding what the government is saying!

        • Depth Charge says:

          Highest inflation in over 40 years (nearing 10%) and they didn’t even raise rates to where they were in the early 2000s. Pitiful lying scum the FED are.

  37. William Leake says:

    The problem is that the Fed writes one thing, Powell in his presser says something else, then a whole slew of Fed members try to walk back what Powell said. So a couple of years of confidence building by the Fed was thrown out the window in a half hour by Powell’s comments. Now, pretty much nobody has confidence in the Fed, nor should they. Next year should be a real mess. Look for some more banks to fail. I am still sticking with T-bills not so much for the yield, but for safety.

    • Absur Ditty says:

      You are doing the right thing William. The government and the Fed are working together very hard to ensure that your T-BILL investments preserve your purchasing power.

      • William Leake says:

        Stocks, bonds, real estate, FX, commodities, banks, bitcoin. T-bills are simply the cleanest of the dirty laundry. They keep giving me 5%, I’ll keep on taking it.

  38. Tom V. says:

    So you’re saying there’s a chance!? I kid, I kid. Haha!

    In reality, the Shiller PE has once again breached 32x with a mean of around 17x. Market levels are insane.

  39. longstreet says:

    CPI in March 2021 all items 111.754

    CPI now 129.809

    % increase 16%

    PCE in March 2021 15,657

    PCE now….. 18,864

    % increase 20%

    These are the increases for 2.7 years

    TO TACK ON 3% would mean based on the PCE increased 23% in 3 years……the LOSS OF PURCHASING POWER 23% …nearly a quarter….in just over three years.


    IF they truly believed 2% was the ok inflation rate, even they must admit they are about 17% over that trajectory

    The YOY % game is BS. Any progress in fighting inflation MUST revert back to the level from which it began…measure inflation from March 2021, you know, when it was declared “transitory”.

    • Thomas Curtis says:


      Prices will not go back down. That is not the Feds goal. Their goal is to reduce inflation enough so that prices on average rise 2% per year over the long haul.

      Central banks abhor deflation.

    • Swamp Creature says:

      My homeowners insurance just went from $1,450/yr in 2022 to $2,300/yr in 2024. A $275 surcharge was due to a large claim filed in 2022. I call that some serious inflation. Other items in my budget of fixed expenses (not discretionary spending) have shown similar increases. Includes utilities, cable, property taxes, transportation, medical etc. The things that have gone down in price are things I seldom buy or don’t have any money left to buy.

    • Ben R says:

      In addition to TC and Wolf’s points… Try not to cherry-pick data to fit your narrative. Looking at purchasing power based on earnings, factor in higher than 5% wage increases per year. Looking at purchasing power based on savings, factor in the high risk-free rate over this period. While I agree that inflation has been out of control, learn from Wolf’s data and look at the big picture.

    • better way says:

      Thank you, well said. I feel this devaluation of the dollar and debt burden has net negative effect on the stability and prosperity of our country both near and long term. I believe they are wrong when they say that money printing and manipulating the real estate market is needed to help or economy and it’s actually making things worse. Not only can our country stand and weather storms with free markets, it’s indeed the only way it will be able to succeed long term. We as a people need to use our voting rights that we are fortunate to have to vote out the representatives perpetuating this road to ruin.

  40. Rico says:

    Fed cuts, Bull market, mortgage rates drop, unemployment drops, consumer confidence rises. It’s a steamer for inflation.
    Why would the Fed cut with those consequences?

  41. MBP says:

    Rates need to go down. High possibility of disaster if they stay high through 2024 for one or more of: 1) CRE, 2) Zombie firms, 3) Banks with huge unrealized losses, 4) People who can’t move or buy because mortgage rates too high.

  42. SocalJim says:

    I am seeing a lot of buyer traffic at a home listed behind me in Newport Beach, even though this is a holiday week. Clearly, people are hoping to lock in the lower mortgage rates.

    • Wolf Richter says:

      New listings rose above year-ago levels (NAR, weekly data), and have been doing this for a couple of months, thereby reversing the trend of the prior two years, as SELLERS think that buyers might want to lock in the lower mortgage rates. Active listings have also risen (NAR weekly data). The inventory is coming out of the woodwork.

      • Swamp Creature says:

        The Real estate market is completely distorted by local conditions which vary from zip code to zip code. In the Washington D.C. area the property values are going up in one zip code and declining in another, so metro area average statistics give a completely misleading picture of what’s going on. What is readily apparent is that there are more neighborhoods with zip codes that are going south than going up. One example: The Chinatown area which was already in decline is now losing the Washington Capitols and Wizards will be devastated. Property values will crash. The area already looks a lot like the Tenderloin district of SFO.

        • SocalJim says:

          In SoCal, good suburban locations are in demand and there is a shortage of listings. But, homes in higher crime areas are weaker.

        • Bay Creature says:

          Everything you said about the DC market is also true in SF Bay Area. Only granular data is meaningful. And in a lot of places, there is not much of it. Also large changes in the mix have become common since the slowdown.
          (I hope that I am not being too presumptuous with my name choice. It was meant as a homage to a colleague with history of informative posts about the Swamp’s real estate market.)

      • Gattopardo says:

        You mean SELLERS who are also BUYERS are thinking they’d like to lock in lower rates on the other side of their trade. :-)

        The wave of realtor blast emails has started with the “best holiday gift ever, lower rates” taking the cake as the most seasonally appropriate. Same one notes the rate decreases giving “buyers welcome relief” and is followed by “this will create a wave of buyers, so buy now”… Good stuff.

        • Wolf Richter says:

          Sellers trying to get rid of their vacant homes that they have been sitting on for a few years after they moved out, trying to ride this thing up to the peak…

      • Herpderp says:

        Really curious how the fed thinks they can tackle housing inflation. Fundamentally it doesnt seem they can. Raise rates, mortgage payments go up, less buyers, more renters, rent goes up. Cut rates, buyers pour in, prices go up. Theres no lever they have here to undo the QE they did with MBS that jumped the housing market 5 years into the future of its price trend. They have to somehow wait for new construction to break this logjam, but new construction is slow, and every year that goes buy those millennials get older and older, with more savings to overpay for that house. Hell, Zoomers are approaching the age theyd be looking for a house if this was 1980, but its 2023 now, so theyll just watch for another 20 years. Right around the time the last millennial finally finishes buying their first home and joins the coveted group of “sellers who also have to buy and have a null impact on inventory”.
        Tick tock Powell, gas and eggs can only get so cheap.

        • JeffD says:

          The Fed won’t/can’t do anything at this point. Only a significant increase in unemployment to 5%+ or a change in tax policy surrounding home ownership and financing will be able to throttle the home price increases we are about to see. Active inventory is just way too low, and will remain low as rates continue to fall, due to a wall of pent up demand.

        • Einhal says:

          You assume that they want to tackle housing inflation. The Fed governors are all Gen X through Boom, and they want to be able to sell their “investments” to Millennials and Gen Y at inflated prices.

          They love their vapid lifestyles more than they love their children.

        • Concerned_guy says:

          Sell the fing Bonds/TBills/MBS as 3 time the current rate and the housing price will come down very quickly. There are lot of option if ones wants….

        • jon says:

          FED can absolutely bust housing bubble by doing more aggressive QT and selling more MBS.
          But they won’t do it as they along with their friends are themselves making lots of money sitting on these assets.

        • Depth Charge says:

          “They love their vapid lifestyles more than they love their children.”

          Never seen a hearse towing an RV and boat to the grave, along with the title to a few shacks. These greedheads are soulless scum.

  43. SocalJimObjects says:

    Liquidity is more important than rates.

    • Bobber says:

      Yes, finally. All this fuss about .25% here or there is not productive, although it is fun to see the Fed tangle tied in it’s own double talk. If they hadn’t intervened a million times to prop up asset prices and over goose the economy, maybe it wouldn’t be this way.

      The real issues are long term rates, long term inflation, and asset price levels, which are precarious now after decades of artificial stimulus and untethered monetary policy.

  44. Speak No Evil says:

    I got in trouble at a xmas party couple days ago. Investor types were crowing about rate cuts and happy days are coming back. I was stone cold sober and should have said nothing. Max three cuts of maybe .25% each if inflation in services are tamed which is raging at about 6% annually. But the Feds could easily jacked it up again or stand pat.

    Man, it was like who invited this @sshole here and ruining my xmas. I was so jacked up on the “misunderstanding” from the Feds. People were asking me about my investment strategy and sh1t. Ah, f*ck me. Seriously. Next time, just have some cheese and crackers and stfu about the economy. The Boss (wife) said not a biggie, everyone was drunk, nobody will remember. Good to have an understanding Boss. Merry Xmas!

  45. DownFed says:

    The transcript is out, and I saw this:
    While we believe that our policy rate is likely at or near its peak for this tightening cycle
    If the economy evolves as projected, the median participant projects that the appropriate level of the federal funds rate will be 4.6 percent at the end of 2024, 3.6 percent at the end of 2025, and 2.9 percent at the end of 2026 …
    That seemed more dovish than what was said in previous press conferences, appearing to be a “pivot”. We once had the “not QE” QE, now we have the “not a pivot” pivot?

    I noticed the 10 year was below 4% earlier today. So, if the Fed was trying to jawbone interest rates lower, it worked.

  46. John Modi says:

    Wolf – if you print money AND control interest rates then classical economics fail and thats what is happening. Interest rate is cost of money and if you have printed so much of it then you can put out whatever Fed rate you want the market will discount it. If you have excess liquidity it will either go to inflate prices of goods and services or assets – nobody will put cash under a mattress.

    We have been talking about yield curve inversion for sooo.. long. All the Fed needs to so get the yield curve upward sloping is to start selling all the MBS sitting in their books !!!

    It is so sad to see that all one is doing in stock market analysis is watching the fed – nobody nowadays even talks about company performance.

    Anyone wants to bet that Mr. Powell will soon get the Nobel Prize equivalent for creating a huge poblem and then trying to solve it 😀

    • ru82 says:

      Good points.

      I saw an interview with Jamie Dimon. He said the FED sets short term rates but you and I, global sentiment, and market dynamics set the 10 year rates.

      The markets have seen the 10 year drop a lot. Money is cheaper now than it has been since last June. (Cheaper to borrow) Companies and consumers are benefiting from the drop in the 10 year.

      Also, commodities have dropped. i.e. This is going to effect EPS for many companies. The Chipotle Steak burrito was $7.5 in 2019 and now it is 12.50. Chipotle is not going to sell the burrito at a loss. They raised prices to meet inflation or commodities and labor. Now with the price of their raw inputs items dropping and the fact that they did not drop the price of the burrito, they are going to see a nice uptick in earnings. This will happen for many companies that process or use raw commodities (grains, meats, nat gas, oil)

      Solar stocks had dropped this year because of high interest rates made the long term capital investment expensive and sales were dropping. Customers were delaying and waiting for lower interest rates. Some solar stocks have taken off because people borrow at long term rates and borrowing is now cheaper. Business will pick up.

      So for now….party on Garth. Low commodity prices and lower interest rates. A good combo for stocks.

  47. shah says:

    Looking at motives and game plans:
    Thanks for your great stuff Wolf, I have been thinking about motives and gameplans recently.

    1)Its clear that the US and global debt (300 trill) cannot withstand real interest rates (without QE) and therefore that at some point the central banks will cave in and resort to new rounds of QE.
    The question then becomes, what are the timeframes involved, in order to play the fed pivot from QT to QE.(and I expect the pivot to be very quick, perhaps crisis driven.
    2) I agree with your thesis that the market plebs are way overeager in anticipating a pivot, but I disagree that its because the FEd found jesus and is now serious about inflation.
    3) I believe the feds real aim in higher for longer is to precipitate a global debt crisis to help their bankster friends (whether they be of the zionist persuasion or not) to buy up global assets cheap.(think pakistani railroads)
    4) For this they need china’s cooperation, and that has already happened.
    5) with global debt at 300 trill (350% of gdp) and 70 countries classified as perilous by the IMF, the question is not if but when.
    6) for a glorious buy the crisis moment to occur I believe the dollar needs to hold stable while emerging currencies collapse. that is where the reverse repo and bank deposit cushion comes in handy.
    7) That cushion can keep qt going for exactly 2 more years, per your calculations of minimum required reserves. However Emerging markets cannot survive 2 years of 6% US interest rates, for certain.
    8) so I think the answer to the fed pivot question is (when the whole world is a mess) which is about 18 months from now.

    • QE is the problem, not the solution says:

      They will say something is crisis to try and deceive people into accepting QE, but I believe it’s the QE and it’s effects of inflation, malinvestment and the people’s risk aversion/”consensual hallucination” that get us into these situations and you don’t solve a problem with more of the conditions that created the problem, in other words, more QE would only make things worse.

  48. Jim Cramer Fan says:

    This is the typical good cop, bad cop routine we have seen from the Fed these past few years. Powell served up a dish of optimism and the market has been feasting. These FMOC members are simply saying “save room for dessert.” 2024 is going to be a fun year for investors.

  49. JeffD says:

    Biden will lose if inflation takes off again. It’s as simple as that. And at the moment, the Fed will be to blame for starting a speculative fire with ill-conceived jawboning and ebullient SEP projections. Frankly, the Fed knew better than to do both of those two things, so I’m not sure why they did them anyway. None of what I say above sways left or right politically, it is all just facts.

  50. JeffD says:

    The Fed has really screwed themselves over with their ebullient jawboning and SEP projections. Bottom line — if $3+ Trillion rotates out of money market funds and into stocks, bond yields accross the board will likely need to increase, and in some pockets of the bond market, lack of buyers will be brutal enough to break things.

    • butters says:

      What’s the rate on MMF these days?
      It’s risk free, too.

      • some risk says:

        MMFs aren’t risk free as I’ve read on here that there could be a run on the fund forcing the fund managers to sell some of the holdings before maturity/at loss resulting in share value loss.

  51. tom10 says:

    Building permits & starts released today, mirror what we are seeing with
    our business. Most of my clients are still on 1.5 – 2yr waiting list for a new build.
    Rate cuts….not at this pace.

  52. Zaphod says:

    Sometimes I think that the Fed is simply incompetent.
    And then I realize that I am right.

  53. Sean Shasta says:

    Former FDIC Chair Sheila Bair clearly pins this utter market chaos at the feet of the Fed – and of course, Powell.

    CNBC headline from Sunday: “Fed sparking irrational market optimism over potential rate cuts, former FDIC Chair Sheila Bair warns.”

    • butters says:

      Has to be intentional, no?

      Or maybe the Fed is just too dysfunctional and Powell is pretty much lost the room?

    • HowNow says:

      During the banking melt-down in 2008, I felt that Sheila Bair’s voice was one of the few that could be counted on

    • spencer says:

      Bair’s book “Bull by the Horns” is good.

  54. RickV says:

    Excellent summary of the situation. It looks to me like the Fed is looking at all the excess liquidity in the system (excess reserves and RRP) and is still worried inflation has not been tamed.

  55. Up Bigly says:

    If anyone is wondering, when Wolf says the options market is anticipating six cuts, you can view markets’ projections by Googling “CME FedWatch Tool”. It’s a neat looking page that chronicles bets made by interest rate traders (who are not necessarily representative of general Wall Street sentiment, and who are often wrong, they certainly were this year). They expect rates to be in the 3.75%-4% range by the end of next year.

    Apologies Wolf if this breaks the rules by counting as a link, but it does seem relevant to the topic at hand.

  56. Bobber says:

    Of course the biggest miscommunication deals with stimulus theory and inflation targeting in general. The reality is that once you increase money supply to goose a economy, that money supply can never be removed because asset prices, consumer prices, and expectations adjust to a higher level. To remove money supply after such adjustments occur risks deflation, and the Fed will never allow that to happen.

    Markets have been told QE is flexible and temporary, but it really is not. It’s a one way inflationary march upward, even in the case of “accidental” over stimulusus events like 2020/2022, which created new permanent price plateaus 20% higher.

    The 2% inflation target is a mirage that will never be attained. Inflation averaging relies on application of stimulus and it’s removal, but we’ll never see it’s removal to any significant degree or time period. They may piddle with ST interest rate adjustments that have little impact, but they won’t be able to pull out the $8T of money printing that remains in the system. With the ongoing QT program, they might get a little more out for appearances sake, but that’s it. As soon as trouble hits, I predict the upward inflation march will resume.

    • Bobber says:

      I should not have said QE can never be removed. You can take it out with little effect before prices adjust. In the case of the 2007 to 2022 QE, they left it in too long, prices adjusted, and I think removing more than a small percentage of it will prove impossible without deflation.

    • Einhal says:

      Agreed. It’s morel like a 2% minimum, not average, because the overshoots will never be balanced out with undershoots.

  57. sunny129 says:

    Since last Wednesday, Mkts have marched higher and higher every day (for a week!) including today! Many missed this ‘train’ waiting for a recession, which is yet to come.

    And many are mad at the Fed, mkts and FOMC members. The power of perception triumphing over the reality has made many frustrated and angry at the Fed.

    I remember how felt enraged when the Fed ‘murdered’ our good ole genuine Free Mkt Capitalism in the March of ’09, in open day light. All to bailout criminal banksters. Ever since nothing is rational in this on going surreal Bull mkt. I am sailing along the waves.

    • Wolf Richter says:

      Wait till the last few trading days of December and then in January. You might have a surprise coming at you that you didn’t see coming.

      • sunny129 says:

        January after 1st week i altogether different story. And you are right. Things will CHANGE always. Now is the action time.

        I have gone thru a lot of surprises since I am in the mkt since ’82. Biggest surprise is this surreal bull mkt in my life time. Just unbelievable. Jaw boning doesn’t all the time but right now, US is the only with relatively strong economy. Money is pouring in. It’s year end with Santa rally on the horizon. This is just a 2-3 week . Then things change!

    • Z33 says:

      Who’s selling? Everyone I know is on vacation and not doing anything actively. Passively we are all buying via 401k so there is buying pressure. Today my 401k buys/bought (usually every other Tuesday, sometimes delayed, so maybe not today but by tomorrow). So maybe tomorrow a drop in the market that seems more often than not the day after my 401k buys lol.

  58. JG says:

    Wolf – your constant defense of this weak & dovish FED is very intriguing. The FED will cut in 2024 for election 2024 politicking and to inflate debt and prop asset prices. No one buys their lame jawboning. Home comp prices “higher for longer”

    • Wolf Richter says:

      The funny thing is you all are completely deaf to half the sentence that everyone at the Fed says (“If inflation continues to cool as we expect”), and you only hear the other half of the sentence (“we’re going to cut rates.”)

      This is called selective hearing, or what Goolsbee here called: “what they want to hear” and ignore the rest.

      You all treat these policy rates as if they were in a vacuum. But they’re not. They’re dependent on inflation. So:

      Higher inflation = higher rates
      Lower inflation = lower rates.

      And I agree with the Fed that if rates continue to drop, they should cut rates. They’re saying maybe 3 cuts (or 2 in Bostic’s case) in 2024, and markets are saying 6 cuts, while EVERYONE at the Fed says IF INFLATION CONTINUES TO COOL TOWARD OUR 2% TARGET.

      But inflation might not continue to cool, and we’re seeing some signs of that, and then all those rate-cut predictions are out the window, like they went out the window in Dec 2022 for 2023.

      You have made it on my housing trolls list a while ago. You should be proud of it.

  59. JimL says:

    I don’t understand why the FED puts out the dot plot. I really don’t. It is useless. It is a bunch of people making predictions about the future when their skills and jobs have absolutely nothing to do with future predictions. The FED deals with the here and now. They deal with inflation is right now. Their job has nothing to do with predicting the future so quizzing them on the future is silly.

    Might as well get a monkey throwing darts.

    I cannot believe people are actually stupid enough to put any stock whatsoever into the dot plot.

    Furthermore, people forget human nature when interpreting the dot plot.

    I know that the dot plot hasn’t been around long enough to have much of a history, but if it lasts, I bet it is going to turn out to be consistently optimistic about inflation. It is human nature. The FEDs job is to fight inflation so if you ask them to make predictions about the future they are going to be optimistic about them winning the fight against inflation. Human nature.

    Ask an athlete about the future chances of his team. He will be optimistic. As a soldier about the future of a war he is fighting. Optimistic. Ask anyone about anything that involves them being competent at their jobs and they will be optimistic.

    FED dot plots will always be optimistic about future inflation because it literally asks them about them doing their jobs.

    The dot plots are useless and I think it is silly how much people think of them as a reliable indicator. They aren’t. Anyone who tells you that the FED has become dovish because of the rate plot deserves Wolf’s tazer.

  60. Uriel says:

    The simple fact is that these interest rates are unsustainable for the government’s debt..markets be damned..

    • sunny129 says:


      US debt to GDP is around 98% now. It can go up to 200% with no serious effect. That’s around for the next 20 yrs. It’s the ‘revenue’ stream enough to pay the interest on the debt. Doom & Gloom rhetoric will keep on going.

  61. SRK says:

    10 year was around 3.9% in Dec 2022 time frame and its around same range in Dec 2023. I am not giving a specific date or rate. But that was the range.
    Treasury issuing so much Debt and QT going on, why 10 year is at same place where we started. Yes it went to 5% for few moments and high 4% for 2-3 months. It came down suddenly.
    FED didn’t change the Fed Funds rates in last few months. Still 10 year dropped by 100 BP.

    We have been saying and thinking Tsunami of Debt issuance. Tsunami waves do lot of damage and they dont die so quickly before hitting the shore. May be those Debt issuance are High tidal waves.
    Many indexes went up 20-30% from Dec 2022 to Dec 2023. Should we say the trend will continue this year then?

    In my understanding, 10 year yield is baseline for many lending rates. So lower the rate, higher the markets will go.

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