Raises longer-run rate projection (higher for longer), and projections for inflation and GDP in 2024.
By Wolf Richter for WOLF STREET.
FOMC members voted unanimously today to maintain the Fed’s five policy rates, with the top of its policy rates at 5.50%, as had been uniformly telegraphed starting with the January meeting and followed by speeches, interviews, and panel discussions by Fed governors amid the Fed’s continued efforts to douse with cold water the rate-cut mania that had broken out in early November. The last rate hike occurred at its meeting in July.
Today, the Fed kept its policy rates at:
- Federal funds rate target range between 5.25% and 5.5%.
- Interest it pays the banks on reserves: 5.4%.
- Interest it pays on overnight Reverse Repos (RRPs): 5.3%.
- Interest it charges on overnight Repos: 5.5%.
- Primary credit rate: 5.5% (banks’ costs to borrow at the “Discount Window”).
The “dot plot”: Seven participants dialed back their rate cut expectations.
In its updated “Summary of Economic Projections” (SEP) today, which includes the “dot plot,” the median projection for the federal funds rate at the end of 2024 was 4.625%, or 4.75% top of range, so three 25-basis-point cuts by year end.
The 2-cut scenario was just one participant short: But the composition changed, with 9 participants expecting two or fewer cuts, and 9 expecting three cuts, and only 1 expecting four cuts. In other words, the two-cut scenario was short only one participant.
The 19 participants each projected their own idea where they see the Fed’s rate by the end of 2024. These are their projected mid-points of the target range by the end of 2024 (today’s mid-point is 5.375%). As you can see, seven participants dialed back their rate cut expectations:
2 see 5.375% (no cuts), same as in Dec.
2 see 5.125% (1 cut), up from 1 in Dec.
5 see 4.875% (2 cuts), same as in Dec.
9 see 4.625% (3 cuts), up from 6 in dec. = median
1 see 4.375% (4 cuts) down from 4 in Dec.
0 see 5 or more cuts, down from 1 in Dec.
The median projection for the longer-run federal funds rate rose to 2.6%, from 2.5% at the December SEP, further increasing the higher for longer theme.
The median projection for GDP growth for 2024 was hiked to 2.1% (from 1.4% in December).
The median projection for “core PCE” inflation by the end of 2024 was hiked to 2.6% (from 2.4% in December).
The Statement:
At the January meeting, the Fed had added entirely new language to its statement, explicitly pushing back against the markets’ rate-cut mania and end-of-QT mania. At today’s meeting, it repeated that language:
Push-back on rate cut mania – kept the language from the last push-back statement: “In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.” And: “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
Push-back on QT slow-down mania: “In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.”
QT continues, with the Treasury roll-off capped at $60 billion per month, and the MBS roll-off capped at $35 billion per month as per plan, the Implementation Notes confirmed today. The Fed has already shed $1.43 trillion in assets since it started QT in July 2022.
Here’s what Powell said at the press conference about Slowing the Pace of QT: “By Going Slower, You Can Get Farther”.
Here is the whole statement:
Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Philip N. Jefferson; Adriana D. Kugler; Loretta J. Mester; and Christopher J. Waller.
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Aren’t these the same members who ‘saw’ transitory.
And then ‘saw’ just a few rate rises needed.
And basically misjudged everything in the negative sense by a whole lot for the last four years?
I hope they don’t get paid based on performance.
I’m expecting cuts only once the wheels fall off the bus.
@KL: Yes, the Fed needs to keep dangling the carrot in front of the rate-cut mania donkeys to keep the market propped up.
As Wolf often says – they don’t want anything to break which will “compel” them to initiate rate cuts immediately and to slow down/stop QT.
Eventually, something will break. But the Fed will try to push it out as much as possible.
To add to my comment above, everything that the Fed does is intentional and the basis of every move and decision is not to crash the market. If you see it in that light, everything – transitory inflation, talk of few rate increases and now 3 rate cuts this year, etc, – will start to make absolute sense.
Howdy Sean Shasta ( Or Depth Charge Wanna Be ) HEE HEE. Everyone is underestimating the FED. They are also working on the next great American bubble. New Home Sales will save the RE market.
Sean Shasta,
Seven participants dialed back their rate cut expectations.
The 2-cut scenario was just one participant short:
The composition changed, with 9 participants expecting two or fewer cuts, and 9 expecting three cuts, and only 1 expecting four cuts. In other words, the two-cut scenario was short only one participant.
If one more dials it back at the next meeting, it’s down to two rate cuts. That kind of dialing back can go all the way to December, gradually dialing back their rate cut expectations, and then year ends without rate cuts?
But it ALL DEPENDS ON INFLATION.
But what data are they using to project 3 rate cuts this year? All the inflation data shows it is still raging. If they are not just jawboning to keep assets high, it makes no sense. This dialing back slowly is for whose benefit? Because it certainly isn’t doing anything for inflation.
Howdy Lone Wolf This dot plot thingy , FEDs crystal ball, is being ignored more than it should be. Glad I learned about it here.
Howdy Lone Wolf Have to add and will bet anyone 50 cents. No other place will mention what you just did. How important was that one vote ??? You have body guards when you leave the house dont you?
The Fed doesn’t have a crystal ball! They have history doing their predictions and history isn’t always an accurate predictor.
They avoided the GFC becoming Great Depression 2.0. They stopped the free-fall of the economy in 2020. Now they’re taking the resulting inflation without breaking anything and all you can note is that faster would be better?
I don’t claim they couldn’t have done better but if you’re going to use hindsight, you also need to see what they accomplished by making things NOT happen.
@ Wolf @ Brian
Brian said: “They avoided the GFC becoming Great Depression 2.0.”
————————————————
stated like a fact, but it is only an unsubstantiated assertion
Wolf, Why do allow such sophomoric propaganda on an otherwise great site?
“Eventually, something will break.”
That could be instigated by a significant resurgence of inflation. Propping up the markets only reinforces inflation. If the FED truly wants 2% inflation, they are going about it in a strange way.
@ChS: You said: “If the FED truly wants 2% inflation, they are going about it in a strange way.”
(1) Fed’s “Seen” mandate: Keep inflation under control.
(2) Fed’s “Unseen” mandate: Keep markets propped up.
(2) overrides (1).
Neither the Fed nor the Government wants to see both the stock and real estate markets crashing. They will try to push this out as much as possible so that it happens under someone else’s watch.
This is how I see it.
I don’t think they want or don’t want 2%. In fact, I don’t think they care about it one way or another. What they do want is for people, especially foreign investors, to BELIEVE that they want 2% and are working toward it. Otherwise, no one wants the U.S.’ long-term debt as current prices.
The FED’s mandate also includes maximum employment, so perhaps they view the markets as propping up employment. Who knows but the folks behind the closed doors.
Regardless, the FED is in a pickle trying to maintain employment AND control inflation.
Einhal, I agree with you on the 2%
That’s one way too look at it but there is another, more nuanced way to look at it. That would be that Fed did exactly as I would have done had I been in their positions for the following reasons:
The current policy stance seems to be facilitating the removal of economic stimulus at an acceptable rate. Over and out.
I agree with that.
The only economic situation that would spur three rate cuts would be the onset of recession.
I guess they remain committed to the goal
of 2 percent inflation target, but not the achievement.
The word committed is carrying a heavy load when the obvious is in front of us.
The Fed appears to be comfortable with an inflation rate that has become anchored at 5%. IMO, they don’t seem committed too any long term objective, only the trend.
– My prediction that the FED wouldn’t cut rates or hike rate came true. Yet, in spite of that “Mr. Market” tells me that the next move will be a rate cut.
Back in December, this idiot “Mr Market” saw 7 rate cuts in 2024, LOL
More like irrational and emotional Mrs. Market.
Sexist BS
The Market players are now pretty much male and female.
So obviously the market is transexual.
But typecheck is still politically incorrect for using old Abrahamic religious doctrine….BUT, I’d have to check with a religious leader to see how severe of a sin Dwayne committed by denying the truth of this nations widely believed (60% + ?) religious doctrine.
I’m agnostic, so I just don’t know what my comment means, if anything.
– I just looked that up. 7 rate cuts coming after december 2023 ? No, I am NOT that delusional. In that month “Mr. Market” predicted (only) 4 rate cuts (= 1,00%).
– Right now that same “Mr. Market” predicts 3 rate cuts (=.75%).
– Although “Mr. Market” has been predicting 3 to 4 rate cuts for the most of 2023.
– But between say september 2022 and december 2023 “Mr. Market” predicted / warned about EVERY rate hike a month/weeks in advance. (made some good money)
– It seems “Mr. Market” has a habit of being stubbornly “(too) pessimistic”. And the yield curve is still stubbornly inverted.
– Will I change my mind ? Absolutely !!! But then that will be reflected in the charts as well in advance.
You can just look it up at CME. For example, on Jan 12, 2024:
91% of 5 cuts or more
89% of 6 cuts or more
59% of 7 cuts or more
This is your “Mr. Market,” for entertainment only, LOL
Everyone that depends on it will keep interpreting the meetings and the data to “show” that rate cuts are coming, real estate agents do that all the time too so I stopped talking to mine for now lol. I just wonder if at some point we go from rate cut “projections” to maybe real world hikes, I mean labor market is still good, savers are making money on interest, companies are making money in the markets.. to me it seems like these would be obstacles to bringing inflation down
Rate cuts will signal the onset of a recession.
And yet stonks love it! I’m really tired of this. Stonks up and down in the short run don’t affect me, as I’m not touching my portfolio for at least 30 years, but this shit pisses me off, as skyrocketing stonks are DIRECTLY CONTRIBUTING TO INFLATION through the “wealth effect.”
Powell needs to cut it off at its knees.
Not gonna happen. They are going to pump this raging mania everything bubble straight through the election. Get ready for another year+ of massive inflation and asset price distortions.
“They are going to pump this raging mania everything bubble straight through the election.”
This is stated a lot, that the FED is motivated in some way by the election. The FED pumping up the markets will only encourage inflation, which really pisses the voters off. So I’m not sure I agree on that point.
I tihnk you and Depth are both right. Basically, the Fed members are in the upper middle class, and likely only associate with other similarly situated people.
So when they talk to their friends, they hear things like “Yeah, inflation sucks, but at least our stocks and houses are way up!” If that’s all you hear, you think that’s the general consensus, but the “wealth effect” asset price bubble only really benefits the top 5-10%. I don’t buy that home equity that the middle class can’t easily access really is driving inflation.
But the fact is, most Americans (90-95%) are harmed by inflation, as they don’t have enough assets to make up for the general increase in the cost of living.
So in other words, the Fed thinks they’re helping the average American, but they’re not. They can’t hear outside of their little bubble.
@Einhal,
“Upper middle class”? Powell has 10s of millions in net worth, he is not remotely in that category.
The median FOMC member net worth is over $5 million. Not upper middle class.
Governors are paid over $200k/year and most are independently wealthy, such as Powell who made a 8-digit fortune in private equity prior to his “public service.” Governors are confirmed by the US Senate and their financial asset disclosures are in the public record.
Regional bank presidents are paid over $400k/year and many are also independently wealthy (think Goldman Sachs partner, mid-sized bank CEO, etc.)
The vast majority of them, as Powell himself admitted, aren’t doing their own grocery shopping. Kashkari did (though unclear whether it’s just one time for a magazine photo op) and he’s one of the more hawkish members right now.
And the FOMC members who aren’t rich right now (typically lifelong academics) will be, once they spin through the revolving door after their “public service.”
Happy1 and Jackson, I didn’t really make that clear. I didn’t mean that they were upper middle class, but that they were solidly there or above. Meaning that everyone they associates with is at least upper middle class, and all they hear is about how high stocks are good for them, so they translate that to mean that it’s good for everyone, and thus America.
Yep. Not going to happen. I thought I heard Powell said they were revising growth higher but is not concerned about inflation. Last months inflation reading may just be a bump?
Job market is more important than inflation. They will let inflation run a little hot to save jobs.
Just join the crowd and buy assets / stocks. Rate cut is still on the board so fixed income is even a good deal right now. Friends who have a lot of their savings in 401ks are pretty darn happy with the FED this year. They are setting up their Europe vacations for this summer. LOL Just saying.
Fuck that, I don’t want to buy stocks at today’s prices. Would much rather add to my gold stash.
And to your point about the Europe vacations, that’s exactly why high stock prices lead to inflation. Because the top 5-10% that benefit use those “gains” to spend.
“Just join the crowd and buy assets / stocks…..a good deal right now”
So you are essentially spreading FOMO to convince even more suckers to buy in at obscene stock valuations to help your “friends who have a lot of their savings in 401ks” pay for their Europe summer vacations.
That’s not what he said. What he said was that there were two bad inflation readings this year after six good ones last year. And last year they’d said they expected bumps in the road, and so now after these two readings, they have to ask if those were just bumps in the road or “more than that.” Future inflation data will clarify that.
There’s more to investing than stocks and gold. Why not build an income portfolio?
Europe doesn’t really want them — sure, they’ll take their filthy lucre, but then it’s pretty quickly: ‘here’s your hat – what’s your hurry?’
An income portfolio being bonds or dividend yielding stonks?
There are lots of great funds out there (closed end funds that you buy as ETFs or traditional mutual funds thru your broker) which invest in specialty credit vehicles and other unique strategies.
I’m not gonna give you specific symbols, but research some funds that invest in…
Hgh-yield bonds
Senior secured loans
BDCs
CLOs
Covered calls
The idea with this approach is you don’t care about capital appreciation because you’re getting 10+% in cash dividends – which is about the average yearly return of the S&P.
And because most of these are higher on a company’s balance sheet than equity, there’s actually less risk. With equity, the company has to continusly grow to provide you with returns; with debt, the company just has to survive and pay you back.
NB: not official investment advice.
They “need to” do a lot of things, none of which they will actually do.
Excess liquidity in the system flows too the financial community trusting them to invest an individuals funds in a manner that is at least approved by the SEC. After all the SEC would never certify a counterfeit currency like bitcoin.
But they did because they are the epitome of the fulfillment of the point of the Citizen United decision to concentrate wealth as a special class who can design a government by paying for it.
Laughable. The FED is a sick joke.
Fed just keeps-on-keepin’-on…. working for its masters.
Howdy Depth Charge….. Tool
Maybe Debt-Free… not spite free?
You been on a tear here recently!
The Fed is certainly responsible for a large portion of managing our currency into the ground.
It’s not like it’s all their FAULT, fiat is fake.
They also have plenty of help from the fiscal side too!
Howdy Struggler. Govern ment tools vs. Freedom. They handcuffed millions and they do not even know it. HEE HEE
Bubba..
I haven’t heard “stupid tool” used as an insult since the 50’s and it was used by my parents, us kids had other insults.
In Volleyball you “tool” someone by faking a hit and swiping it off the blockers hands and out of bounds where nobody can get it.
Anyway, I think DC was just short on insult creativity, but I sure don’t get your comment……AT ALL.
Could one be a corporate /or filthy rich old dynasty tool, also?
If in your mind it’s only government that can make you a tool, it definitely marks YOU as a shallow ignorant fool…..debt free and successful or not.
Or is there something important you know I don’t? Which is unlikely.
Wolf, I’m listening to Powell’s press conference. Where’s the zapper when we need one!
The press conference Powell held is just for show. I doubt he would even give press conferences if he had his way. The policy gods don’t like their decisions questioned by anyone, least of all middle class mortals.
The first two reporters’ questions were not bad… then we got to Timiros LOL
Powell was really funny when it came to the CBDC question. I wish he showed more of his humor. He ridiculed that guy.
I’m glad he smacked down that question…. “we’re not even thinking about thinking about it!”
That’s the opposite of what he said. He said we ARE thinking about it, but it will have to be approved by Congress, but we aren’t anywhere near proposing anything to that effect to Congress and may not propose anything like that to Congress, and that we’ve been transparent about it. But we have to understand payment systems since we’re in charge of payment systems, and so we have to keep on top of new developments, and so we are studying it. That’s sort of what he said.
They clearly don’t want anything breaking before the election and he is very reserved not to upset someone or something. When someone pushed him that he is dismissive of the data he doesn’t like he was like those two last months don’t mean much. Really but what if continues and for the next two the same way? I guess will see…
No, because that would pretty much hand the election to DJT, who the entire establishment is against. They will do everything in their power to prevent that. The problem for them is DJT is gaining voters as this current administration is bringing maximum economic pain to the masses.
The establishment still needs the votes and resurging inflation isn’t gonna help.
They are between a rock and a hard place. Inflation is slowly gutting them. It’s hilarious, especially when 20+ Dems came out to pressure Powell to cut rates, which would ensure even more inflation. These people are not the brightest bulbs.
Powell was asked about Congressional pressure to cut rates. He handled that pretty well. He has got to tread carefully there. Congress is his boss.
A PhD Economist friend who works as a professor at a major university informed me that two things need to both happen to signal inflation is about to spiral out of control:
1) The Central Banks succumbs to political pressure from the government to print money instead of making such a decision based on econometric factors
2) Governments start prosecuting their political opponents with bogus charges and show trials
Oddly enough, he also said those 2 signals aren’t happening right now, so there’s no reason to worry….
“Oddly enough, he also said those 2 signals aren’t happening right now, so there’s no reason to worry….”
LOL
What is your definition of “the establishment?”
It’s not “my” definition, it is THE definition:
“In sociology and in political science, the term The Establishment describes the dominant social group, the elite who control a polity, an organization, or an institution. In the praxis of power, The Establishment usually is a self-selecting, closed elite entrenched within specific institutions — hence, a relatively small social class can exercise all socio-political control.”
Depth Charge,
Agreed but then I disagree or at least don’t see evidence the establishment doesn’t want DJT. Clearly a large number of them do and lots of money is being spent to ensure that. Admittedly the other side is spending too but that is our system. It is tricky to define the elite as well. Are those the politicians, the corporations, the lobbies, the media or some weird mix of all of it. All I know is that the financial sector and corporations tend to favor a divided government as status quo is pretty good for them right now.
I’m not political as in the big picture I see little difference in the two parties so my comment wasn’t political but rather trying to comprehend what cabal is trying to keep things looking good.
The Biden and Mayorkas impeachment inquiries are textbook bogus charges and show trials. Less than zero credibility.
There’s a difference between “anything breaking” and stonks being at their absurd bubble levels.
An S&P return to 3,800 hardly qualifies as anything “breaking.”
Here is what is odd.
If you look back in time. The time to sell stocks is when the FED rate has been flat for awhile after a big rise. Why, because they raised rates to cool off the economy. Then they start cutting because the economy is starting to do bad and unemployment is going up. Typical stocks market start a 10% to 20% drop when rates are cut.
Then when the FED finishes their rate cuts, that is the time you want to start buying because that is about when the economy has bottomed and starts to get better via the rate cuts.
Well this time is opposite. The market is going higher at the indication of rate cuts. In the past, people would have been selling the past few months with any indication of rate cuts. Rate cuts are typically needed to boost a failing economy instead of goosing it so we can hit ATHs in the stock market.
They’re front-running stimulus out the other side of the drop.
But by doing so they’re likely making the drop even larger because it’s been pumped higher.
For those cost averaging in it’s likely not an issue. Ie. Savers and investors.
But for those leveraging, and/or buying big volumes to try profit, then there is the risk they’re going to be waiting 10-15 years (inflation corrected) to get back to where they were, or wiped out entirely.
Rate Cut mania really started around 1st week of November. S&P up 25% in just under 5 months.
Generational move.
Generational money-printing, asset manias and deficits.
They’re pushing back so hard against rate-cut mania that they’ve pushed all four major stock indexes up since Powell started talking.
…and they’ve pushed yields down, of course–the second biggest downward move in 2-year yields this month. Push, push, push!
At this point, no one is listening to the Fed or Powell, and it doesn’t matter what they say. I had been that way for over a year. They’re living in their fantasy world. And it will end.
But then…it might not? Does it have to end?
It seems like a perpetual motion cycle at this point.
“At this point, no one is listening to the Fed or Powell, and it doesn’t matter what they say.”
Sure they are, and sure it does. You yourself acknowledged that their rate cut signaling late last year was a colossal blunder. It wouldn’t have been–categorically, it couldn’t have been–a blunder of any size, let alone a colossal one, if it didn’t matter what the Fed or Powell said.
I don’t think Wolf meant that it doesn’t matter what they say under any circumstances, just that he could be as hawkish as possible and it still wouldn’t matter.
I do agree though that Powell could certainly tank the asset markets (which is needed to get inflation under control) if he wanted.
He could easily come out and say “Every time the market rallies over a week period, I’m going to raise rates by .25% and increase QT by $10 billion a month.”
That would knock it down pretty quick.
Pea Sea,
Wait a minute. They “signaled” THREE rate cuts in Dec. And Wall Street didn’t listen, but invented SEVEN rate cuts. That’s how that goes. What I said was a blunder was to allow rate-cut mania to take off like that.
“What I said was a blunder was to allow rate-cut mania to take off like that.”
Yet they’re continuing to allow it. So, why all of a sudden is it no longer “a blunder” to you?
The rate cut mania died down largely. You might have missed it because you’re always so pissed off when stocks go up. Those bets of seven rate cuts have gone up in smoke. They may still be a little aggressive, but not like they were in Dec.
And the dot plot changed a lot today, now just one participant away from 2 cuts. That was in reaction to two months of rising inflation. If inflation continues to rise, one more dot changing sides means they’ll project 2 cuts at the next dot plot. And we’ll go from there.
@ Wolf
Is Depth Chage pissed off because stocks go up?
or, is he just pissed off because stocks go up because of FED and Government/Treasury actions/malfeasance/manipulations that reward one class while punishing another?
(and that rewards speculaion over “classical” prudence)
(gambling/herd prediction vs previously established sound business and financial practice)
Wolf said: “They’re (the FED) living in their fantasy world. And it will end.”
——————————————————————————–
what will reality look like?
Let the conspiracy theories begin: J Pow starts talking about CBDCs, then the screen goes black and he disappears!
My computer exploded when he got to that question.
Meanwhile over at CNBC… it’s all smiles as ATHs everywhere salivating over the rate cut dangling carrot.
The thing is, the “rate cuts” have been “priced in” for 3 months now, during which time markets are up 20% since October.
How many times can the “markets” rally based on the same rate cuts?
@Einhal: As has been mentioned many times here, there is way too much liquidity.
As long as there is liquidity and the Fed keeps signalling rate cuts, the markets will rally. Until there is no liquidity left. We just have to hope and pray that it happens soon. In the meantime, we will all continue to be squeezed by inflation.
But there really isn’t. The Fed has removed $1.5 trillion, they’re continuing to remove more, and the Treasury is taking more liquidity out every time it issues new treasury bills/bonds.
This is more just straight mania, imo.
@Einhal. Do the issuing of bills/bonds really remove liqidity? Those money are quickly spent by the government and back in circulation. And the money is spent on goods, services and wages.
@Einhal
Presumably a lot of the money for the bonds is coming from the stored money in money market funds that _used_ to be locked up in the reverse repo facility. So that money is getting unlocked. And if foreigners are buying our debt, they’re adding cash to our economy, not taking it away.
Like Wolf has said, congressional spending and QT are fighting each other.
Sure, they’re back in circulation, but they’re not necessarily chasing assets, especially if they’re being consumed.
@Einhal,
All currency created eventually flows to assets, in spite of any twists and turns it may make on its way there. That’s why capitalism implodes without constant debt growth, also known as “money creation”.
rate hikes & high rates & rate cut anticipation = bullish?
rate cuts = look out below? or double bullish?
entertaining to watch while my purchasing power has been leveled.
So the Fed again sides with maintaining asset prices rather than the purchasing power of the dollar. Shocker…/s. USD is basically worthless anyway…look at how much of that crap you need to buy a low quality stickbuilt home on dump land, an education, or really anything else. Guess I gotta keep getting rid of my dollars overseas and buy stuff made elsewhere.
That’s exactly why I’ve been buying gold.
I’ll take those extra unwanted dollars off your hands.
Does anyone really think the dot plot involves 19 FOMC members voting by secret ballot? Of course not. This is a committee that debates for hours & days over subtle, single-sentence changes to their FOMC statements. They’re very careful about changes that would end up shifting the median dots.
@Jackson Y: I agree with you…that everything from the Fed including the dot plot is very carefully orchestrated:
(1) to NOT crash the market
(2) bring inflation down over “some” period of time.
(1) is of paramount importance and (2) is secondary.
“bring inflation down over “some” period of time.”
Notice how Powell consistently said he’s confident inflation will “eventually” return to 2%… but no mention of how long that eventually would be.
If we have 3-4% inflation for the next decade before we get to 2%, that still fits in with eventually – yet long bonds are not priced for a decade of high inflation.
History would have judged the current Federal Reserve extremely favorably if they brought inflation down to 2% with a mild recession (ie the whole “soft landing” thing that’s been talked about these past few years.) Heck, Volcker was remembered extremely favorably despite a deep recession, due to inflation staying under control for the next 40 years.
Instead, what they’re really aiming for now is the “immaculate disinflation” scenario, ie inflation down to 2% with ZERO damage to the economy & labor markets. Which is extremely unlikely because all inflation cycles in the past have ended with some kind of a landing, and a “no landing” scenario tends to keep inflation expectations & behaviors entrenched.
What’s most likely to happen now, in my opinion, is another year of 3-4% CPI (2-3% PCE), in which the Federal Reserve unofficially increases its target without the political firestorm of formally raising it. Powell will continue to publicly insist the target is 2% but he’ll allow seemingly an open-ended amount of time to get there, which is politically easier than explicitly raising the target. But the bond market certainly has picked up on it with TIPS yields, inflation breakevens & CPI futures all moving higher this year.
Jackson Y, but if that’s the case, why are people still snapping up 10 year treasuries at 4.3%? That means they’re basically getting no real return.
Einhal – people are buying the 10-year for the same reason they’re buying QQQ: they think rates will come down and they’ll make capital gains.
But if you’re investing for income, you’re right that 4.3% is a horrible return. Right now I’m targeting a 10% annual return in my income portfolio.
Exactly he kept saying their goal is to bring inflation back 2% OVERTIME was the key word. What period is that who knows…And that’s exactly why the market loved it so much.
Everyone at the Fed, including Powell, has used “over time” for two years. It’s the standard lingo. They’re looking at YEARS of higher interest rates.
Agreed.
Given considerable:
a) change in ‘dot plot’ distribution; and
b) variance among the members for 2024,
FED might have started to see something in the data, that makes them confused, so they are preparing for some serious downturn in 1-2 years.
I hope they get good mileage with QT on this announcement.
Picture is worth a thousand words. See page 4 of SEP:
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20240320.pdf
Jackson Y,
They do NOT VOTE on the dot plot. They submit their figures where each sees the rate, GDP growth, inflation, etc. by the end of the year, by the end of 2025, etc. Then the figures get tabulated for you to see.
I don’t think Powell has a hawkish word in his vocabulary…
“Powell was dovish” has been the most repeated line of bullshit on Wall Street for the past two years, now with rates at 5.5%, and not going down for a while, and with $1.43 trillion in QT.
While the government runs a 6% of GDP deficit and the stock market gains have very significantly loosened financial liquidity. He should have simply said no cuts in 2024 until financial conditions tighten back and the government stops increasing its own deficit. Maybe a 0.25% rise to deliver a smack across the head.
I just don’t understand how is that okay to run on such deficits with the economy growing what’s gonna happen when recession hits? This is crazy…
Overall, the meeting sounded extremely dovish and the market reaction confirms that (when in doubt, just look at how the market reacts)
The key is most of the FOMC sees the high January-February inflation as a blip that doesn’t really change the big picture of gradual disinflation over the last 18 months.
– Base case forecast is still 3 rate cuts.
– When one reporter asked about easing financial conditions, Powell purposely avoided talking about the exuberant markets & instead pivoted to the labor market coming more into balance.
– Neutral rate forecast has barely budged despite surprisingly high levels of continued economic strength. Larry Summers, who called the inflation surge but is not on the FOMC, think it’s over 4%.
– Committee still confident that current rates are not just restrictive but “HIGHLY restrictive” (but don’t really explain how they came to that conclusion)
– There seems to be minimal concern on the committee about what if Jan/Feb were NOT a blip & inflation is rebounding (even if not to 2022 levels.) Oil is back above $80 and usually goes higher into Memorial Day-July 4 travel season. In that scenario they’ll probably just hold rates for longer, sounds like zero appetite for further hikes
– “Slowing QT so they can go longer” is BS. Markets always cheer at this type of policy because the slowdown is guaranteed & immediate, while the end of QT is at some unspecified point in the future & can be easily reversed at the first hint of economic weakness.
Are we listening to the same press conference? I always listen with financial news & stock charts turned off, so I can judge independently. I heard a very dovish message.
““Slowing QT so they can go longer” is BS.”
This makes perfect sense to me. Why do you think its BS?
Jackson Y,
“Powell was dovish” has been the most repeated line of bullshit on Wall Street for the past two years, now with rates at 5.5%, and not going down for a while, and with $1.43 trillion in QT.
This bullshit just never ends.
Wolf is just another mouth piece in a world of many. He’s correct as much as the Fed. It was a super dovish conference and inflation will go higher. Remember when Wolf was talking about Hertz and his beloved Tesla and how great that deal was. Years later and Hertz is out couple hundred million dollars and fire selling their Tesla inventory. Yet Wolf will defend anything EVs just like anything Powell. Too bad he’s too big of a cry baby to approve this comment.
“Remember when Wolf was talking about Hertz and his beloved Tesla and how great that deal was.”
You lying idiot. This is what I actually said about the Hertz and Tesla deal (Oct 25, 2021):
Title: “Tesla Rental Deal is Propaganda Coup for Hertz’s “Selling Shareholders” & for Tesla. But Rental Fleets Are Low-Quality Sales Automakers Don’t Tout”
Subtitle: “Hertz +10% ahead of share offering, Tesla +13%. But why does Tesla get into low-margin rental fleet sales if there’s strong retail demand?”
Here is the whole story:
https://wolfstreet.com/2021/10/25/tesla-rental-deal-is-propaganda-coup-for-hertzs-selling-shareholders-tesla-but-sales-to-rental-fleets-are-low-quality-sales-automakers-dont-tout/
How’s that self-driving cars thing working out for your Wolf?
I have pooh-poohed them for years, but they’re getting pretty good, so I hafta stop pooh-poohing them?
But human drivers are the worst, they kill 40,000 people a year and maim and seriously injure about 2 million a year.
Frank. I disagree with you. You got strange conclusions, naive. Not sure what would be your point. Not everything is black or white in the world.
Frank,
You got caught with your pants down…😂😂😂
@Jackson Y,
Agreed. This list makes it crystal clear that three cuts is a political decision (keep markets and tax revenue higher) as opposed to an economic one. If every company in the country went bankrupt, the plant, equipment and labor is still there, ready to operate from a lower cost base after bankruptcy. There is no need to support asset holders other than politics.
What “three cuts”???? There are no “three cuts” — all they’ve been doing for months is talking about some cuts “if inflation continues to to decline,” which it stopped doing, and they haven’t cut a thing. Maybe they will cut and maybe they won’t.
The subtext of the Fed’s comments is the only interesting thing to talk about (and a good debate about it here thus far) because there’s zero rationale for 3 rate cuts this year when the current situation is this…
“Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.”
That was my reaction. Three rate cuts? How is that even close to being in the cards?
Agreed. I could understand being cautious, and waiting to see if the QT and rate hikes to date can finish the job of controlling inflation despite recent reports looking on the contrary.
But why is there this seemingly default position that if everything is good and unemployment is very low, then it is time to cut rates – doesn’t make any sense to me.
They haven’t cut rates. What is the hysteria?
Then they should get rid of their stupid dot plot, or, at the very least, say that the rate cuts are contingent on inflation returning to normal.
The way they present it, the bond market takes it as a certainty that cuts are coming, regardless of what happens.
“they should get rid of their stupid dot plot”
Agree 100%
They should get rid of the dot plot on general principles, along with the whole concept of markets being entitled to plenty of forward guidance, well in advance.
Howdy Prisoners. What if the FED knows this is a 70s 80s inflation cycle? Raised rates as fast and high as they dared. Get past the election and raise some more. Took years before……. Could work again but maybe not. We will find out if we live long enough……
Yep, I think that they are playing to get beyond the election and then deal with any extra inflation, didn’t work and the 1970s and wont work this time. 2025 is going to be a real hum dinger.
Overall, nothing much has changed and extending the lag effect, even longer seems somewhat logical, because nothing has broken, in the resilient economy.
The lack of shock kinda gently contributes to the ambiguity we’ve had ever since pandemic. Higher for longer short term yields keep a lot of people fairly happy in money markets and unfortunately, the AI hype machine will probably chug higher for longer too, until it implodes. If you can stomach absurd risk, who cares …
Meanwhile, in the world of reality, GAAP earrings continue to decline as valuation gets more and more and more excessively stupid.
It’s basically up to stupid people to break the economy with insane speculation.
T-minus 11 days until minimum wage in California goes to $20/hr. That should help with inflation…
That’s only fast-food workers, only a small part of the working people of California. In places like San Francisco, that won’t be much of a hike since many restaurants are already paying more in order to attract and keep people.
Howdy Lone Wolf. The youngins are just a little scared. My parents talked and prepared for the next great depression. I found myself preparing for the next great recession. America survived as we know.
“America survived as we know.”
I tend to agree with you on that sentiment. However, there is a part of me that is becoming concerned. The “youngins” seem inclined to some sort of cultural/economic revolution to an extent this country hasn’t seen before.
ChS, wealth concentration is a surefire way to eventually have revolution.
But that is completely foolish. History demonstrates that when a population is obsessed with inequality and revolts, the result is an increase in ACTUAL poverty. Meanwhile, the relative wealth disparity between the general population and ruling class, that the revolution claims to want to correct, stays about the same. So life is better because misery loves company?
Currently in the US, the relatively poor population is overweight. It’s not perfect by any means, but seems a lot better than millions starving to death.
ChS, I didn’t say it was smart or stupid, nor did I make a value judgment.
I’m just saying that when we do what our leaders have done, the result is predictable. It always is.
ChS – looking at the number of failing food banks it appears that the ‘starvation’ may have already begun, with wealth disparity remaining well-intact. Ignore large numbers of folks who (by THEIR contemporary standards, not yours, no matter the reasoning) feel they have little to lose and/or opportunity for true advancement, at your peril. (Meanwhile, we continue to consume our spacecraft’s stores at an ever-accelerating rate, the ultimate results caring not what a class, or market, thinks…).
may we all find a better day.
I hear a lot of people assume it will only impact fast food workers. I understand that’s who the law immediately impacts.
I would only suggest someone spend a little time thinking how retailers and service industry providers will go without responding in kind when the cashier/burger flipper is making $20/hr.
But let’s see if stays in the fast food industry as you presume.
I don’t know what planet you are living on but employers already have to pay $20 an hour to get anyone to do anything. Texas used to be a low wage state but even here wages have skyrocketed. My oldest grandson is a student who works menial jobs for extra money. He won’t get out of bed for less than $20 an hour!
I just passed a UPS warehouse with a huge 100+ ft banner saying “$22 and up pay”. If pushing boxes around is a minimum of $22 in a moderate wage state (UT) then what is it in a high wage state such as CA?
The place that wages are suppressed are in telecommute jobs. I had a job in Medicre sales that paid $18/hour in 2019 which was good then (all in office then as well), but (same company) is still paying $15 to $18 an hour for LICENSED sales persons because they are now 100% telecommute so everyone has to compete with Alabama wages instead of local wages.
Why telecommute is badmouthed by The Boss I do not understand as it is in reality a way to get the lowest wage from the lowest wage area.
The market rallied 20% because there were supposed to be 6-7 cuts now keeps rallying because there will be 3…lol
I would not be surprised to see a pump and dump unto the retail investors event in the next few weeks … crazy to buy in the markets now
@Milo: Too much liquidity still sloshing around – both from money printing as well as fiscal.
Median Projections:
Growth from 1.4% to 2.1%
Core PCE from 2.4% to 2.6%
Unemployment lower (median bin same)
Cuts @ 3 (no change)
This really isn’t very consistent. But, it is an election year, and the dot plot is not a promise. More data. I do think the “one short” for 2-cuts is a carefully crafted message.
Another big rally coming in Wallstreet in next month. It time to thank me again for it.
Every time J. Powell speaks to market swells, this better than buying the dip. All time highs at the greatest show earth since March 2020. Investors outside US helping fuel the fire. So much waiting on the other shoe to drop. 3 rate cuts won’t do much if anything if they come, but fan the flames. Market shouting Risk On, what have a got too lose scenario.
It seems the Fed is more concerned with the balance sheet. The rate talk is all noise. Tapering down the balance sheet is talk much like the rate cuts. All noise until?, it comes down. Seems years from now. Wolf talked about the balance sheet taking longer.
The truth is that there is not much else for them to focus on at the moment. They can’t cut interest rates until inflation comes down a bit… and the exact opposite is likely to happen until the second half of the year (if then). At that point they won’t do it for fear of being accused of interfering with the election. So December at the earliest… no matter what their Dot Plot shows.
Which leaves balance sheet reduction as the only game in town for them. So good on them for thinking about how to extend it so that they can achieve their goals there. There will come a time when they must focus on interest rates again.
And Bitcoin is up $6,000 today. I agree with Jackson. There was nothing hawkish about this meeting at all.
Powell belongs in a concentration camp.
Wall street loving it.
BitCON is an elaborate scam where billionaires bilk unsuspecting rubes from their hard-earned wages.
Oh how I agree on that! At least with tulips you were left with a nice garden. 60K – $70K for an asset with absolutely NO intrinsic value, just hype and FOMO?
Nothing says tight financial conditions like fake internet coins for $70,000 a pop.
This whole thing is a joke.
Waller: “central banks were disillusioned with policy analysis that was focused on monetary aggregates”
Apparently Waller has never heard of disintermediation.
Obviously inflation will be the gauge but seems that increases in Fed rate unlikely and significant chance of several cuts by end of 2025. That suggests to me the stock market will just continue to shoot up as yields decline. When those cuts come as well very likely housing prices go up again as well. Outside of unknown seems likely the only direction for the market is up. 5400 or higher for S&P by end of 2024 and perhaps 6000 by end of 2025. It doesn’t have to make sense.
I don’t think yields will decline, but stocks may continue to shoot up with just pure multiple expansion.
Yields have already declined based on the “dot plot.”
How much more can they go down?
Wall street interpreting it as dovish. That’s all you need to know. I hope this country collapses it is so corrupt. I’m done with this crap.
I think the existence of any cuts on the dot plot is dovish, however, Wall Street could interpret rain drops as dovish.
Powell came out dovish. He downplayed the last two inflation reports.
I should say it was interpreted as him downplaying the last two inflation reports.
“Powell was dovish” has been the most repeated line of bullshit on Wall Street for the past two years, now with rates at 5.5%, and not going down for a while, and with $1.43 trillion in QT.
This bullshit just never ends.
Wolf, why bother saying that he wasn’t all that worried about the January and February inflation numbers? What was the point, if not to jawbone the markets up?
This is what he actually said:
“If you look at the incoming inflation data that we’ve had for January and February, I think very broadly that suggests that we were right to wait until we’re more confident. I did not hear anyone dismissing it as not information. So I think generally speaking it does go in the direction of saying yes, it is appropriate for us being careful as we approach this question.”
They have ensured that all assets that matter permanently go higher, at the expense of the working class and the poor. There was a class war. The rich won.
Bingo. Just as Warren Buffet said. And it’s been humming along at a faster-than-usual pace for about 40 years now.
New all time closing high for gold.
Yep….the central banks were impressed by that enraged rabbit Jay Powell.
Does gold actually ‘close’? I didn’t think it did.
Or are you just referring to the LBMA?
Nvidia has a market cap to sales ratio of around 37. That seems reasonable. 😂
Momentum in equities is a heck of a force.
Stay safe out there.
Shocka
“QT Continues as Planned”
Wolf, would you agree that lowering the TGA and reducing the RRP Balance is adding liquidity to the financial system and hereby is counteracting QT?
If I take both into account, we have today a higher total liquidity than in September 2022.
The TGA is the government’s check book. It moves up and down with tax receipts, spending, and Treasury issuance. Like any checkbook, it moves up and down a lot. It’s now at $748 billion, up from $300 billion a year ago, but down from $860 billion at the January high, and it will meander lower until about April 15 when the tax receipts arrive, and will pump it up again. Tax receipts are going to be big this year due to capital gains taxes on the 2023 gains.
ON RRPs represent excess liquidity that money markets don’t know what else to do with. So as they shrink to zero under QT they’re absorbing the QT. After they hit zero, reserves will absorb the QT. Reserves are banking liquidity. Liquidity flows all over the place as it deals with QT. So it’s not that ON RRPs put this liquidity out in the market; rather it’s that they’re absorbing QT.
Also some of the ON RRP cash has moved back to reserves, which is why reserves have actually risen over the past 12 months, despite QT.
Curious thought.
In May 4, 2022 Jay Powell press conference he stated the current pace of QT Fed is approximately equal to one 25-basis-point rate hike in terms of its effect on the economy.
With excess liquidity drying up as evidenced by decreasing overnight RRP usage isn’t the cessation of QT the equivalent of a 0.25 percent rate cut?
The “cessation of QT” may be years away.
https://wolfstreet.com/2024/03/20/what-powell-said-about-slowing-the-pace-of-qt-by-going-slower-you-can-get-farther/
Thanks for the detailed answer. The RRP Balance at about $400B will go to zero, then QT will be more difficult and therefore will be reduced then imo. At this point it will get interesting.
I hope you saw that AI fake Powell answering a dumb question exactly the way you’d like. Maybe you made it?
Sorry, no, lol. You have a link?
A long time ago a friend of my ex wife was being strung along by a guy she wanted to marry. Every time she’d get antsy he’d say “there’s a ring in your future..”
And believing this she’d do all the fun things that a guy like that wanted for the next couple of months. Not sure how it ended up but he kept her anticipating for a long time.
I’m reminded of that story a lot.
“There’s a rate cut in your future..”
It’s called “future-faking,” and it’s in the narcissists’ playbook. Not surprisingly, most of these aszholes running things are evil narcs.
I was looking at Bloomberg and realized that the dollar went down (in DXY) at almost exactly the same amount S&P went up. So Powell didn’t jawbone assets higher, he jawboned the dollar lower. That’s all he’s doing. He’s intentionally damaging the dollar, which causes assets to reprice in real time.
He should be in prison.
I was thinking an electric chair.
Meanwhile China is comfortably sailing past on the negative PPI / 0 inflation ship. How likely is it for the FED to consider the US economy’s relative strength to the Chinese when making policy decision? I mean when people question the independence of central banks it’s usually because of internal politics, but no economy can be totally independent from others – and especially not from it’s biggest competitor.
The Soviet Union never really competed with the US in economic terms and fell mainly because of lack of investments, innovation and growth (amongst other issues), whereas China did embrace capitalism and is taking on the US in it’s own game. It is now clearly a task for regulators to keep the expansion of Chinese companies in check – will the FED feel the urge to provide low interest rate to the US economy as soon as possible to spur (artificial) growth?
Which asset class does wolfster see as the asset class he favors most givin the data today? Here and now? Samo samo?
I don’t understand the angst here.
I’m perfectly happy to sit right where I’m at for now. The “t-bill and chill” plan still works. The FED hasn’t blinked. T-bills are running 2-3% real rates of return depending on which inflation report you believe, a historically high. Long-term bonds are at least above current inflation metrics, and while they’re not a screaming obvious buy, they’re not as obviously horrible as they were 2 years ago.
At the same time, it’s clear the real estate markets are unwinding. Commercial real estate is a disaster zone, and the Fed’s entire reaction was “uh, look at that…” Residential real estate is starting to unwind. Foreclosures are rising, and prices showing signs of falling in the way that real estate does, slowly and unevenly.
Sure stocks are reaching new highs, but as always “the last days of the party are the wildest”. Maybe it all comes apart this year, maybe next year, but who cares, I’m getting paid to wait while it sets up for the fall that always comes.
What’s not to like?
I wouldn’t care if not for the fact that I see tons of people out there spending with oblivion because of their “wealth effect” stock gains. You know the type, the 60s something man driving the Porsche, parking in the valet, eating at fancy restaurants, etc. This is directly creating inflation.
@Cody: I agree with you – The higher it goes, the steeper the fall. I don’t want it to be this way, but the countless Fed shenanigans since 2008/9 make it impossible to end any other way.
Yeah… WolfStreet attracts a lot of Negative Nellies who imagine that they would be safe in a world in which the economy goes on the extreme boom-and-bust cycles of the pre-Fed era of American history. It is sort of odd that they make their comments here instead of other places on the web… since Wolf himself clearly doesn’t share their view.
Yes… the Fed was slow in recognizing the permanence of the spike in inflation. But they have gotten pretty much everything right since then. Inflation has dropped by about half… which is fairly good… especially since they didn’t send the economy into a recession by doing it. Bond yields are back up to historical norms (or a little higher) as are mortgage rates. The only thing that hasn’t reacted normally is the stock market… and it is hardly the Fed’s fault that Wall Street refuses to get the message after 23 months of tightening.
Out of 120 people in my department 2 have purchased a new car in the last week. Seems people are confident in the economy.
March can be the best car buying month of the year. People come out of hibernation.
Average length of vehicle ownership is a bit less than 5 years. That means your department is probably buying about 25 cars a year.
Is it particularly meaningful if 2 of those 25 purchases happen to land in the same week? Nope, it’s statistically likely to happen several times a year.
You’ll have better luck predicting public sentiment with tarot cards than with the “2 people bought a car” indicator.
Wolf,what duration would you be trying to lock in, before it goes away
1 year ,3 year. 5 year, or all of the above
All Will have changed, gone down within the next sixth months,’
according to Fed speak
Are the “cuts are coming” crowd the same lot as the “a recession is coming” crowd? If so, why can’t they be wrong AGAIN?
Of course they can be wrong, but their being “wrong” in the short term has distortive effects on the economy.
It’s the Fed’s job to guide them to not be “wrong,” and I see no evidence they’re trying to do that.
Debt and debt servicing, locally and globally, is choking innovation and growth around the globe. I know that Wolf has laid out a case that the Fed can get their balance sheet under 6 trillion, but this is extremely optimistic. I’ll stand by my prediction that the Fed will not be able to get their balance sheet below 7 trillion before things start breaking. Let’s be honest, the majority of the debt is fraudulent, but sorry, our global oligarches/kleptocrats own our “representation” and are bringing feudalism back.
Hedge accordingly.
With higher interest rates and a bullish stock market, savers here and those around the world that invest here are flush. My defined benefit pension is well over 100% funded and they raised payments 20%. And this is a no cola pension.
What affect does this have on inflation? I think the savers are being compensated but the paycheck to paycheck people are being hurt. It’s a Goldilocks conundrum.
You have to wonder what Powell thinks of the whole “Dot Plot” phenomena… and if he has plans to change that tool. It completely undermines the messaging he is trying to put out there when people see how dovish the Fed governors are in private.
“when people see how dovish the Fed governors are in private.”
Nonsense. You didn’t even look at the dot plot. Nor did you read my commentary about it. So here is again from the article above:
Seven participants dialed back their rate cut expectations.
The 2-cut scenario was just one participant short:
9 participants expecting two or fewer cuts, and 9 expecting three cuts, and only 1 expecting four cuts. In other words, the two-cut scenario was short only one participant.
As you can see, seven participants dialed back their rate cut expectations since the last dot plot:
2 see 5.375% (no cuts), same as in Dec.
2 see 5.125% (1 cut), up from 1 in Dec.
5 see 4.875% (2 cuts), same as in Dec.
9 see 4.625% (3 cuts), up from 6 in dec. = median
1 see 4.375% (4 cuts) down from 4 in Dec.
0 see 5 or more cuts, down from 1 in Dec.
Do we know which are voting members and which arent?
Wait… the dot plot is not voted for… everyone submits their visions for the future, and those visions are tabulated. We don’t know who had which vision, but lots of times, they will tell you in speeches later what they were thinking.
Only the meeting’s rate decision for that day is voted for. And that vote was unanimous, and all the voters are listed at the bottom of the statement (see article above).
Thanks, Wolf. So we don’t know which dot belongs to whom (at least not from the dot plot), though those who follow the speeches closely could perhaps predict which one still sees 4 cuts.
Correct. I think we’ll find out eventually who the 4-cutter is. My guess is Chicago Fed prez Austan Goolsbee. He’s the super-dove. But he is in a non-voting slot on the rate-setting committee this year. So it doesn’t matter what he thinks in terms of the actual rate decision (whether to cut or not to cut at a specific meeting). But it does matter for the dot plot.
Nonsense… I read very bit of your report. But at least some of these governors should be talking about one or two rate HIKES when inflation is resurging the way that it is. How come ZERO of these Fed Governors are predicting THAT?
Because they (and their staffs) are still too dovish… that is why.
Policy rates (5.25% to 5.5%) are way above current yoy inflation rates: CPI 3.2%, core CPI 3.8%, PCE price index 2.4%, core PCE 2.8%. The increase in inflation has been in recent month-to-month readings, so this is very disconcerting for the trend, which is why they should not cut. But with yoy inflation rates still way below policy rates, they don’t need to hike at this point. They need to hike when inflation rates go near or above policy rates, and that may or may not happen.
Wolf: I agree with you that the CURRENT policy is the correct one. The Fed has done a fantastic job in cutting inflation in half without triggering a recession. But the Dot Plot is about Fed participants anticipations of FUTURE policy.
As you say, month-to-month inflation indicators are moving in the wrong direction… hopefully that is a temporary thing. But instead of signaling to the markets that there will be no rate cuts this year (the most likely scenario IMHO) the Dot Plot participants are hellbent for leather putting the word out that there will be between two and three rate cuts in the latter half of the year. Only TWO (out of NINETEEN!!!) said that policy would hold steady… and as I said above… ZERO out of 19 anticipated there may be a need for even a single rate HIKE.
Peter Coy wrote an interesting article for the NYTimes in January in which he asked “Is the Fed Falling Prey to GroupThink?” In it he points out that there hasn’t been a single, solitary “contrary” vote cast on any FOMC decision since 2005. Whether the Fed has gotten the policy of the day right or wrong… they have all voted in unison for 19 years now. Communist politburos showed more independent thought than that!
He postulates that the failure to think of the inflation rise seen starting in 2001 as anything more than “Transitory” was a recent example of this groupthink. That would be just ONE example… and I am sure that we can both come up with more.
The bottom line for me is that I think this Dot Plot thingamajig undermines their messaging. Powell clearly wants the markets to think that the Fed is on top of the situation and showing constancy of purpose… meanwhile repeated Dot Plots are showing that behind the scenes the participants and their staffs are just itching to cut rates even in the face of rising inflation.
(Of course the cynical, alternative view would be that the Dot Plot being so at odds with both the current policy and the likely policy that it gives Powell and Company multiple opportunities to talk up the actual policy in rebuttal to the Dot Plot… like they did last month and at the end of last year… rather than the Fed disappearing in the market noise a few days after they announce the current policy. But that is too cynical a view even for WolfStreet regular like me!)
No rate cuts this year. Not happening.
Let’s see what the coming PCE (released March 29th) and the CPI for March (released April 12th iirc) prints are.