Powell has some explaining to do. Only slight concessions about strength of the labor market and improvements in inflation.
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%, according to the statement released today after its two-day meeting. The last rate hike occurred in July 2023, and this decision marks the anniversary of the 5.25% to 5.5% rates:
- 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 (ON RRPs): 5.3%.
- Interest it charges on overnight Repos: 5.5%.
- Interest it charges banks to borrow at the “Discount Window”: 5.5%.
No rate cut in July has been broadly telegraphed in speeches and interviews by Fed governors, and markets did not expect a cut at this meeting.
But 25-basis-point cut in September has been fully priced in by the markets. They expect with near 100% certainty a rate cut in September – not in December, not in November, but in September. In recent weeks, there has been no room for doubt about a cut in September.
Where the heck is the September rate cut?
The statement did not say anything about a rate cut in September and left the language concerning its policy rates unchanged. It will be up to Powell at the press conference to explain what is going on in here.
The statement repeated the language that it had used since January to push back against Rate-Cut Mania, for the fifth time:
“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.”
The statement repeated what it had said since the rate hikes started, to push back against voices that propagate raising the Fed’s inflation target to 3% or 4% or whatever.
“The Committee is strongly committed to returning inflation to its 2 percent objective.”
What changed in the statement:
The description of the labor market:
New: “Job gains have moderated, and the unemployment rate has moved up but remains low.”
Old: “Job gains have remained strong, and the unemployment rate has remained low.”
The description of inflation:
New: “Inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the Committee’s 2 percent inflation objective.”
Old: “Inflation has eased over the past year but remains elevated. In recent months, there has been modest further progress toward the Committee’s 2 percent inflation objective.”
On the Fed’s employment and inflation goals:
New: “The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
Old: “The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.”
QT continues at the slower pace.
As was announced in May, the Treasury roll-off continues at $25 billion per month, and MBS come off without any cap – whatever comes off, comes off. But if more than $35 billion of MBS come off in a month, the overage is reinvested in Treasury securities.
The Fed has already shed $1.74 trillion in assets since it started QT in July 2022. To avoid the mess the Fed ran into with the repo market blowout in September 2019 after QT-1, it started slowing down the roll-off in June as per new plan. “By going slower, you can get farther,” Powell had said at the press conference after the May meeting. July is the second month of the slower pace.
It was a no-dot-plot meeting. Today was one of the four meetings a year when the Fed does not release a “Summary of Economic Projections” (SEP), which includes the infamous “dot plot” which shows how each FOMC member sees the development of future policy rates. SEP releases occur at meetings that are near the end of the quarter. The next SEP will be released after the September 17-18 meeting.
Here’s what Powell said at the press conference: How Powell Kept a September Rate Cut up in the Air.
The whole statement:
Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have moderated, and the unemployment rate has moved up but remains low. Inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the Committee’s 2 percent inflation objective.
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 continue to move into better balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
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. 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; Austan D. Goolsbee; Philip N. Jefferson; Adriana D. Kugler; and Christopher J. Waller. Austan D. Goolsbee voted as an alternate member at this meeting.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
As oft remarked here…higher for longer. Please, I’m sick of the hopium for rate cuts. Stay the course, Fed. The inflation fight isn’t over yet.
You know what, I’m going to double down on my disgust about the rate cut addicts. The past decade in the US has been an environment fostering reckless investments. We see this in zombie companies, which Wolf arduously describes, and their unraveling as we’re starting to see in this higher rate environment.
The cost of borrowing has been far too low for far too long. The spirit of saving has been hollowed out by many. An ounce of prevention is worth a pound of cure. Save today so you have tomorrow. This mindset not drilled into the masses. Folks forget about the Great Depression. Hunger. Societal desperation and uncertainty. “NOT HIRING” signs.
We have been living in an extraordinary era of plenty. The jig can’t last forever. Higher rates for longer.
Read “The Price of Time – the Real Story of Interest” by Edward Chancellor. A readable explanation of why everything you are saying is correct.
Curiouscat,
Excellent suggestion about Edward Chancellor’s “The Price of Time”.
Readers here might also want to read his “Devil Take the Hindmost”. Not an enjoyable read – it isn’t fiction – but fascinating none the less.
The statement is not as impactful to the hopium that the market will dream up. Wait until the press conference, that’s the big Superbowl for the market to dream up the scenario they want to hear no matter what Pow Pow is really trying to say.
The CME Fedwatch rate predictor is showing a 95.5% probably of a quarter of a percent rate decrease for September. It seems to have been accurate so far with rate predictions over the recent past few years that I have been following it. There are some periods I wasn’t checking it so I wouldn’t say for sure that it has been right on with it’s predictions and percentages though. It’s disappointing to see this train continually heading into the inflation flames. On a side night, the advertisement on the right hand of the screen is says “HYPERSEXUALITY IS NOT INFIDELITY. It’s an ADHD RESPONSE.” That’s good to know, very reassuring I suppose. I’m not with Fidelity anyway, I’m using handling things solo but I haven’t been doing great considering this climax in investments that many have been experiencing in the last bunch of years. I need a partner to help me. Maybe it’s time to get an advisor or something.
Damn I’m a dumbass who needs to read my post before submitting. Too many typos. I read this one, I promise……Twice, so dumbass is no mistake here.
I’m not afraid to put in work or go solo but I’m learning that having a partner just makes things go a lot better and everyone ends up a lot happier and satisfied. Humans aren’t supposed to be loners. It’s best to share in the success, and doing so can bring greater rewards and returns than going it alone anyway. It’s about approach and perspective I suppose is what I’m learning. I’m always worried that there is a catch, everyone is in it for themselves. I’m down to go to town, and as much as I like a good f—, I feel like the game is rigged and eventually the music will stop and I’ll get f—ed. I must have grown up around too many bad people a long time a go. I’m too skeptical and hesitant to trust strangers with rehearsed nice smiles and nice clothes. And what am I supposed to think of all those people who find a partner on the opposite end of the duality spectrum who cleans them out and the gubmit helps along the process to do so. It’s like calling the police because you got carjacked and when you feel relief when they show up, they pull out their service weapon on and finish cleaning you out by taking your gold jewelry, watch, and clothes. Jeez, where is Rodney Dangerfield right now when I need some advice?
Cupcake
“The CME Fedwatch rate predictor is showing a 95.5% probably of a quarter of a percent rate decrease for September. It seems to have been accurate so far with rate predictions over the recent past few years that I have been following it.”
That’s funny. It has been 100% wrong so far this year through today. in Dec 2023, it predicted 6 rate cuts for 2024, and in January briefly, it predicted 7 rate cuts for 2024, and we’re at the end of July, and we’ve got 0 rate cuts so far = 100% wrong.
It’s nearly always wrong. This is a chart of its history of being wrong, I posted this a while back so it’s not updated:
And here is one I posted five years ago, of it being nearly always wrong:
It’s been right more than you have, so there’s that………..ha.
So where are the rate cuts? Some me a rate cut!
As you can see in the blue chart, CME started predicting rate cuts for the second half of 2022, shortly after the Fed started hiking rates, LOL. I remember that. We had these comments here about the impending rate cuts in 2022, every time the Fed hiked (by 75 basis points, no less).
I told you I’m a dumbass. Educate me.
I wise man once told me “I wish you were smart enough to know how dumb you really are.”
I have no idea what he was going on about…….
I’m still trying to figure out if your first post was purposefully full of odd sexual innuendo or if you were really talking about investments and autocorrect was just making fun of you
I could be wrong but pretty sure the CME had a 90% chance of a rate cut for March back in January and look how well that turned out.
I believe you. I wasn’t checking it for most of the first half of the year since TreasuryDirect.gov put a hardlock on my account and I couldn’t access it. I had a lot of my mun-nee locked up at the ultra great government rate of 0.0% during that time period. Checking the interest rate predictions was not something I had motivation for at the time. I can always trust the government to do things that will work the least in my favor.
CME bets have been grossly inaccurate for the last two years. I don’t think there’s a single point in time that they’ve been anywhere close to reality.
LOL….I think the ADs are targeted based on your search history…hmmm
“HYPERSEXUALITY IS NOT INFIDELITY. It’s an ADHD RESPONSE.”
“targeted based on your search history”
Sometimes they are, sometimes they’re not. Sometimes they’re targeted based on other things known about you, such as your gender, age, income level, etc. Sometimes they’re not targeted at all. Sometimes they’re targeted by context (finance/business/economics here).
I got the same ad, only they spelled response, “responce”. Not sure of the implications, though I’ll take it as a step higher than the “toenail clippers for seniors” ads that routinely pop up!
“HYPERSEXUALITY IS NOT INFIDELITY. It’s an ADHD RESPONSE.” Off-subject, to be sure, but I find this quite interesting. So, if you have ADHD, can you mess around behind the spouse’s back without guilt? Or can you be hypersexual but still be fidelitous? Or you can be a cheat, not be hypersexual, have or not have ADHD and still keep fidelity? Or could you be a sociopath, a fraud, a felon, a draft-dodger, a mysogynist, cheat poor people and workers regularly, lie non-stop, and still not have ADHD?
Also, not sure what you’re looking at. CME currently shows 83.7% of 25bp cut, 16% chance of 50bp cut. This is even crazier than Sunday when showing 88.7% / 11%. Craziness.
@ Cupcake:
If you’re handling things solo, is that infidelity?
Rate Cuts/Hikes typically take 12-15 months to have an effect. @Wolf: What are the metrics that you want to see before you would feel comfortable with the FED cutting?
I think there are at least several indicators showing that the numbers are directionally headed towards the 2% (averaged) inflation goal. At what point do you wait to long to ease resulting in tipping from a soft to a crash landing?
In a previous post Wolf said:
“Four decades of history say it’s not over until the 2-year yield overshoots the EFFR.”
Feb 18, 2024
Inflation still coursing the system, but asset inflation is looking mighty peaked. Houses are probably going to follow vehicles over the falls, especially if the Fed doesn’t send any soft signals at Jackson Hole. In short, the next one might just be a rate increase, which would panic a ton of “smart” people. Which, I would guess, will be November 7, 2024. If they cut before the election, Trumpie would accuse them of being partisan, and they will do nothing without a crisis.
Okay, going contrarian (and probably wrong), with a half point increase November 7, 2024. Shock and awe to tame inflation and boost the dollar.
Someday this war’s gonna end…
They already stopped short/ forgoing the “last” projected 25bps hike.
Rates will NOT go up, until/ unless inflation is higher than the current FFR.
The market owns JPow. I saw a headline after the presser “JPow ‘tips his hat’ to a Sept. cut.” It should be “wait and see” until something is about to break (like the job used to be).
Regarding the (inevitable?) Trump presidency: JPow is damned either way (too tight or too political). So I could see that September cut, so that prices can finally be directional (looking at S&P: the trend is kinda sideways, maybe a little up).
Trump LOVES it up and to the right, HARD!
…and the Market is still partying like it’s 1999
I’m 85% liquid assets and happy
Cheers
I know, I’m a dumbass too. I’m so liquid and this market is a sieve. I wanted to be ready to take advantage of the foolishness of the form-fitters. The Fed, Treasury, and dangerous government operatives have me boiling off frogs and all that liquidity is wafting away as vapor.
The party don’t stop till the fed rate drop.
We are all “Still Waiting for “Greater Confidence” about Inflation,” just like the Federal Reserve’s FOMC. Reminds one of the movie: “Apocalypse Now” in the scene of the nightime battle on the bridge when the officer character asks the enlisted soldier “do you know whose in charge?” and the soldier asks: “ain’t you?” Jerome Powell and the rest of the FOMC waiting, like us, watching surveys on how the public feels about inflation forecasts, begs the question to the Federal Reserve “ain’t you [in charge]?”
So we currently have “some further progress” and need to see “moving sustainably toward 2 percent”.
Given the Fed’s proclivity for telegraphing, I think that rules out a Sept rate cut entirely.
It likely means the first cut is AT LEAST two meetings away because we’d need them to acknowledge “sustained” progress before putting cuts on the table.
I’m guessing it will be well into 2025 before that happens.
Personally I think the elevated rates are good and should stay longer.
I agree, but the Fed doesn’t care what either of us think.
I agree. I am coastal so cal and the RE market is still nuts. Any sort of rate drop and the prices will go even higher than they are now. Personally we have been enjoying higher rates on savings and would also hate to see that go down. Just because the inflation appears to be coming down does not mean that rate drops would keep it coming down. As the Wolf says the Drunken sailors have not slowed their roll so keep them higher for longer. I am also certain the lending institutions much prefer the current rate environment for profits.
People who need mortgages, they’ve about stopped buying, even in Southern California. Purchase mortgage application data out today dropped even deeper into the whole, down over 50% from 2019. Sales are way down, even in Southern California. What is still happening are high-end cash deals.
Wolf,
1. Has the issue not become somewhat political rather than monetary? Would a rate cut now not show direct support by the Fed for Harris to drive up asset prices and show that the economy is fine? Perhaps that is why some Fed officials have been telegraphing “later in the year” until after the election results to move the rates.
2. The Trump campaign is openly talking about the death of the American dream and the crushing of the future generations of home owners. People have connected the dots between the Fed’s inflationary support for housing and what it is doing to them and are agnry at the Federal Reserve. I clearly see Powell’s fear of this and how he is becoming political rather than independent.
Whatever the Fed does before this election — cuts, does nothing, or hikes — will be interpreted by one side or the other as politically motivated. That was also a topic at the press conference. Someone will be screaming that it’s political, no matter what the Fed does.
I imagine that if Powell cuts rates, he’ll do so with another line of work in his back pocket. Mr. Vindictive will surely fire him if he does. I’d bet on that.
Good luck. There’s no legal precedent for such a move, and he’ll have to wait till 2026 to select someone else IF he wins (as he’s doing everything in his power to alienate independents/undecideds).
“The Trump campaign is openly talking about the death of the American dream and the crushing of the future generations of home owners.”
That’s rich of them, considering that the ghastly policy errors that got us into this situation were initiated during his term, without (to put it mildly) a peep of objection from him. And that before the pandemic he publicly threatened to fire Powell for not being loose enough.
Of course, Biden was no better, and voters, being largely unsophisticated and ignorant about both monetary and fiscal policy, tend simply to blame the incumbent in any case.
This. Exactly. Its amazing how short everyone’s memory is. Everyone is going to fix inflation and lower interest rate simultaneously somehow. Its like our politicians are magical. Just as they were going to reduce the debt burden by growing the economy. Or fix inflation by giving out more money. I’m convinced everyone knows what would prevent and fix this stuff, its just unappealing to their crowd.
“Democracy is the theory that the common people know what they want, and deserve to get it good and hard.” H. L. Mencken
hmmmmm…still got another 30 mins left and 2 more days till the end of the week. Let’s see what kind of hopium the market can come up with to make sure it close much higher by the end of this week.
It’s always interesting to see how much glue this market loves to sniff after a FED day like this..
…And nasdaq is rallying 500 pts. Nasdaq. Almost 3% UP in one day. It won’t be long before it overtakes the dow
Remember one week ago when the stock market crashed like it was 1929 all over again. That was really something. These economic cycles are getting really short. I’m glad that it only took a week to recover though, that was really scary times that I wouldn’t want to live through again. All good now.
a short cycle indeed. glad we survived it.
I’m old enough to remember when the FED was supposed to use the markets to transmit its tightening monetary policy.
…………crashed like it was 1929 all over again……LOL!!!
Probably just oversold and a dead cat bounce. Look at what companies that announced earnings are doing, like lmnd, grpn and pins. They’re getting hit pretty good because *newsflash* the consumer is weak! Who knew?
At/near all time highs and oversold. That’s kind of like saying today is a great day to buy and sell real estate.
Said EVERY Realtor EVER!
Or no one goes there anymore, it’s too crowded.
These Wall Street rate-cut junkies seem to be able to live the future out today. They may be dead before rate cuts, but they are enjoying the spoils of rate cuts before they even happen.
It’s time for the FED to BBQ the speculators. Raise rates 25 basis points in September and cut them off at the knees. Just bury them for good. Speculators are bad for society.
Watch a rate cut — feeding the fat cats atop the food chain, with all the absurd speculative ventures again fleecing the suckers, and real estate prices zooming again. Gold and bitcoin take off.
Whenever I invest, I always ask myself:
1) “What if you are wrong?”
2) “What signals will tell you you are wrong?”
3) “What are you going to do if you are wrong?”.
I am pretty sure that all of the people here calling for no rate cuts this year are wrong. Now there are two things that could induce rates cuts instead of just inflation; an increase in unemployment and a decrease in inflation.
I am still mostly invested in the market and plan to “sell on the news”. My signals for being wrong are:
1) the PCE going up 0.2% or more
2) unemployment going under 4%
Good luck with your gambling
There will be no rate cuts by the Federal Reserve this election year.
The FED always states very clearly and precisely what it plans to do. Then everyone immediately says “It’s a lie. Theye trying to fake out the markets. They’re not going to do that – They’re going to do this. Don’t believe what Powell says. He works for the banks, blah, blah, blah.”
So funny to watch the FED disbelievers. I’m guessing most of those same folks lose their asses if they trade or invest based on their own personal opinions and ignorance vs. fed facts and statements.
I must have been on vacation when the Fed said inflation would hit 9% and its balance sheet would hit $9T.
I don’t blame markets when they disregard what the Fed forecasts. The Fed’s record is dismal.
The fed continually underestimates the impact of asset price increases and the wealth effect. Allowing 150 million households to lock in 3% mortgage rates for 30 years was utterly moronic, short-sighted, and heavy handed.
the fed’s buying 25-30% of agency mbs wouldn’t have been enough if the other 70-75% were not happily being bought up by investors. anyone who bought 3% 30 year mortgages is a fool, whether the fed or private.
Don’t forget that there was a span of time when interest rates, in the EU, went negative. How insane was that?
You can lead a horse to water but you can’t make it bake lasagna.
“ Allowing 150 million households to lock in 3% mortgage rates for 30 years was utterly moronic, short-sighted, and heavy handed.”
It may have been unintentionally unconventional genius.
It may prevent a 40-50% crash like in 2008. Who would want to give up their historic low house payment and foreclose?
The only way I would give it up was if I couldn’t afford the historic low house payment. Ie job loss, death, or massive deflation. The Fed is on standby to jump in and fix most of these.
Mandates? The title on the currency is “Federal Reserve Note” not “Federal Reserve Knots”. We’ve had “Don’t Tread On Me”, “Fifty Four Forty or Fight”, and “Remember The Alamo”. It’s time for “Protect The Money or Die!”. The only damn mandate is to have one constitutionally protected money that’s worth trading labor and assets for. Line up all the wanna be forgers and let the bricks fly. No crap coins. No widget digit. No easy peasy instruments. No marginal betting. None of it. Interest bearing cash only…bring a damn briefcase or take a hike. The house of bullsh*t crashes…so f*cking what! Let the chips fall. Time to rebuild from ground up. Crack a few eggs, make some diner patrons happy. And kill off the corporate chains that strangle everything.
Nah…. didn’t you hear about Mr T schmoozing the crypto fans a few days ago? His word is as good as gold so bet on it.
He promised all the babies a brand new crypto lollipop!
I was in Walmart the other day and it was obvious that a lot of food and household and clothing prices are back down to pre inflation prices.
And the corn crop on the farms look like it is going to be huge in the Midwest at least. This should help lower prices on everything.
So Walmart yes, it has been rolling back some of the price increases on some of its food items. Used car prices have plunged but not all the way down where they were. Other goods prices have dropped. The Goods CPI has dropped at the fastest rate in two decades.
But that’s goods. That’s just a small part of consumer spending.
About 65% of consumer spending is services. So ask people about their home insurance, their auto insurance, their health insurance, etc. Ask them about rents and housing costs. Ask them about other services. Many services are up hugely and continue to rise.
Exactly, it doesn’t feel like we are in a low inflation scenario. We are in a better place then two years ago, but that is it.
Powell is clueless. Also, the Fed needs to give guidance on the future of experimental monetary policy.
And those services, most of them, never drop. Ratchet effect. No one wants to take less for their work. It’s one thing for Walmart to reduce the price of lettuce; it’s entirely another for a hair stylist to reduce their fees.
The ratchet breaks when companies fail or are sold. There’s a shake-up. The ratchet effect is not like the law of gravity.
Just need home and rent price to do the same too. If this time is different, let it be the speed of the decline that’s different (much faster please)
My dentist just raised his prices 11%, so who cares. I’m also not seeing most food and clothing back to prepandemic levels. They may have come down from the highs but not back to prepandemic.
This whole discussion hits home for me as I have a large T bill position maturing on Sept 17. So do I reinvest on the 17th or wait for the announcement on the 18th? My current thinking is half before the announcement and half after. I feel like I am playing Lets Make a Deal…
The September rate cut has been getting priced into the T-bill yields in recent weeks. We discussed this here:
https://wolfstreet.com/2024/07/13/what-the-short-term-treasury-market-says-about-rate-cuts-and-how-wrong-it-was-so-far/
The closer we get to the FOMC meeting date, the more a rate cut will be priced in – assuming there is a rate cut. On the day of the announcement of the rate cut, T-bill yields will likely not change much because the rate cut was already priced in before.
But if economic data moves the other way, there may well be no rate cut in September, as Powell said today, or any time this year. It will all depend on the broad economic data to come out before the September meeting. So if that data reverses and sours on the Fed, the Treasury market will price that September rate cut back out; it has already priced out a previously priced-in rate cut in March/April. So watch the data.
Howdy Kramartini. I love watching this insane show with my nuts in 28 day T bills at Treasury Direct. Squirrels do it better. HEE HEE
In my mind, this was the biggest change:
From: “The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.”
To: “The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
The explicit acknowledgment that there is now some risk to the employment side of its mandate – not just the inflation side – is a very substantial shift in tone. The description of inflation also softened from “elevated” to “somewhat elevated”.
I’d say that inflation 50% above the upper limit of its target range is quite elevated.
But at 450% of the target it was “transitory.”
When steering the Titanic, looking in the rearview and not having a hand on the rudder (but a committee debating whether or not the rudder will work)…
What could possibly go wrong?
On the other side, JPow mentioned the brave new post pandemic world where “things are different now.”
The $500Billion FTX/ crypto blowout, SVB/ Credit Suisse, First Republic “weekend at banker’s,” 70-90% markdowns of office towers and whatever else has happened since the “tightening” began have only had the effect of ATH asset prices and above trend GDP growth.
This time IS, different?!
I am no Fed seer. But my ears heard, “we are capitulating.”
Wolf: getting back to the post, what do you mean Powell has some explaining to do?
I long for the days when the Federal Reserve was silent on what their intentions were. For decades they operated like that. Even later under Greenspan, when he talked, no one understood what he was saying. Only recently does the FED do signaling. I don’t see how signaling is of any benefit to the masses. They should stick to their knitting as they did previously and do their job. There is no need for them to be catering to WS or “the markets” what ever the hell those terms mean.
It is of very little benefit to anybody outside of Wall Street. The idea that markets are entitled to a great deal of forward guidance was jaw-droppingly stupid, and should have been self-evidently so. Among other things, it trapped the Fed in what turned out to be a gigantic policy overreaction during the pandemic.
Because of the “no surprises” doctrine the Fed didn’t feel that it could go back on its very strongly implied “promise” to slam interest rates to the floor and buy every Treasury and MBS in sight for years, even when it rapidly became evident that markets of all kinds were white hot, and indeed were overstimulated. Without that idiotic doctrine, the Fed could have been more nimble and actually responded to the ample data screaming at them to slow down.
It’s ironic that the Fed has shown greater transparency about their strategies and conversations, yet people think that the Fed is conspiring even more than I ever remember the public thinking earlier.
Maybe it’s more about people being more frightened, more suspicious and skeptical, more fearful that they’re being sold down the river by the Fed and by government. It’s totally ironic because it is quite the opposite. Yet conspiracies travel at the speed of light, and everyone has their antennae up waiting for a rescue, for Godot to pluck them out of their misery but do it without paying any taxes. Truth is, Godot is going to fleece their asses, every way ’till Sunday. And they’ll thank him for it.
Jerome didn’t want to harsh the buzz at the Jackson Hole party in August.
More free candy is coming! And Ozempic for everyone! The fat lady will never sing again!
Nothing I see in his press conference statement really alludes to a rate cut at the next policy meeting. I probably need to listen to the Q&A though.
He does give some I guess optimistic news that the metrics he’s looking for are moving in the right direction, but he hasn’t hung up the “Free Shit” sign yet.
I could have swore at a previous policy meeting (maybe it was the last one) that he said they felt a rate cut could happen this year sometime, but I could have read something wrong or it’s just another sensationalist clickbait article title, as I don’t recall him ever speaking definitively about anything really that wasn’t hard numbers data related. The closest was either late last year or early this year when they took the top of the cookie jar a little too soon and inflation started crawling back up again.
Thanks, BH. The “free shit” sign gave me a needed laugh.
Here it is, hot off the press:
https://wolfstreet.com/2024/07/31/how-powell-kept-a-september-rate-cut-up-in-the-air-it-will-all-depend-on-the-data-till-then/
ADP reporting wages are up 4.8%. Not sure how they’re expecting inflation to come down to 2% with those sort of numbers. The market, as usual, is ignoring these stats.
0.9% in the last quarter. But always you can look at this as increasing productivity. 🤔😀
“With wage growth abating, the labor market is playing along with the Federal Reserve’s effort to slow inflation,” said Nela Richardson, chief economist, ADP. “If inflation goes back up, it won’t be because of labor.”
10 years bills/notes are hair from going below 4.0%.
Below 4% today. I believe temporarily.
The last time the “yield chart” of the 10- year was this oversold was in December (rate cut mania, year end repositioning etc).
The 10-year could go all the way down to 3.2%, (technically even about 2.5%) and STILL be in a “secular uptrend”… based on the charts.
I see the 10-year bottoming soon/ possibly touching as low as 3.8%.
Meanwhile the 10-2yr has broken out of a slight downtrend and is near the upper end of its recent (<1yr) consolidation phase.
It has the appearance of wanting to head to 0.
Every time it crosses that “0” line from the negative, it gets a fancy name (like Great Depression or GFC).
IF the FED cuts the rate by 25 basis points in September, so what? It’s almost meaningless in and of itself. What the markets really want are multiple consecutive cuts, or, even better, consecutive deep cuts as they did in March 2020.
I can see a scenario where rates are cut by 25bps in September or whenever and then stay in and around that for months, maybe even a year or longer. Rates would still be high, relative to what we’re used to for the last 15 years. Businesses that depend on 3% rates will fail. Sectors that are particularly rate-sensitive will probably remain depressed by historical measures, eg residential property. Everything else will go on as it has for the past year since we got here.
One interesting sector to keep an eye on are banks and what happens IF depositors decide they want in on the 5% p.a. that money markets, CDs and T-bills offer and are tired of getting 0% and move their funds over.
It would be so meaningless as to have no ECONOMIC meaning at all… which is why they won’t do it. It would definitely put them in the crosshairs of the election talking heads… which the Fed has historically tried to avoid in a Presidential election year.
If they want to raise/lower rates they can simply wait until the meeting that takes place the day AFTER the election and do so to their heart’s content… and not suffer any blame from the political world.
Howdy Youngins. Don t be fooled or worried and always follow the dots……A .25 % either way makes little difference when living a squirrels life……
HEE HEE!
I am now sort of on the fence that low inventory and low home sales is a buyers strike but maybe it is a sellers strike? Sellers do not want to sell when the see the government printing debt and causing inflation. I have a couple of rentals I thought about selling a year ago but I am more worried about inflation than deflation. So I am holding on to them.
Anyone think that this could be part of the scenario? Just thinking out loud. Home builders do not seem to have any problems selling homes.
Home builders homes are brand new and they’re selling at a lower interest rate. Pre-existing homes are either outdated and need $100k put into them or a quick flip where someone expects you to pay $100k over what a reasonable price would be and then take out a 7% mortgage. Hard pass. I’d buy one of the new homes by me if they actually had yards. Buyers are striking over the ridiculous prices relative to the quality of what they get for their money.
And that they can’t rent something of similar quality for a much lower price than the mortgage.
*can rent
MM1 – 100% agree. I’d add, most people who are selling would need to buy one of those overpriced homes at a higher interest rate (new monthly payment), so the market is just frozen.
ru82, consider what is now happening to people on the verge of buying a house and getting a mortgage. If they haven’t locked-in a rate, they’re going to wait, and wait. Who wouldn’t want to wait for the prospect of a rate cut and the presumption that more cuts will follow.
The anticipation of “imminent” rate cuts is probably putting a chill on the housing market.
ru82
“I am now sort of on the fence that low inventory and low home sales is a buyers strike but maybe it is a sellers strike?”
Inventories are surging, supply is at multiyear highs.
ru82,
I think the question is why are sellers selling? If they don’t get their high price, will they lower prices to sell, will they rent out the house, or will they keep the house and enjoy their low 3% loans?
How many are forced to sell?
I think in 2008 when unemployment was high, mortgage rates were high (6% instead of 3% now), and stocks were decimated, people had to sell at any price or walk away from their homes because they could no longer afford the payment. Housing prices dropped rapidly with a high inventory of homeowners who had to sell. Fear of being the next person to lose their house, drove the inventory higher and prices lower.
So far, homeowners today have jobs, higher salaries, record high stock prices, and low mortgage payments. They don’t have to sell (unless they die or divorce) but some would be willing to pull $1M in gains out of their houses if possible.
Unlike 2008-2012, selling today seems to be driven by greed and not fear.
As long as the Fed maintains this, home prices may drift lower but not crash. The tipping point will be caused by high unemployment, wage deflation, lower stock gains, and the number of houses approaching underwater status (Panic will ensue). A soft landing will let inflation slowly and silently whittle away at flat house prices. Widespread fear will cause prices to crash.
Pretty clear position from the Fed IMO
Three 25 pt cuts unless inflation spikes or if the labor market tanks it could be more so we’ll see.
Last few inflation reports have not spiked but pce was a bit hot. Labor market seems fine but things can change quickly
Clearly there preference is to start cutting 25 bips at a time. Looking at a Temp top in yields but I doubt the rate cuts will have any positive impact on growth or housing
The Fed likely wanted to cut right now but they had to wait because their preferred measure of Core PCE has base effects that could easily push the Year over Year Core PCE rate up over the next couple months.
The July and August 2023 prints were both 0.1. Last month was 0.2. If we get two more 0.2 prints in the next two months, the Year over Year Core PCE will be accelerating. And the Fed would be left trying to defend an ill timed rate cut.
They’re hoping that the prints are 0.1 or lower for a couple months and that gives them cover to cut in September. But those plans would be derailed by even fairly tepid prints.
Core PCE:
https://wolfstreet.com/2024/07/26/large-upward-revisions-of-core-services-pce-inflation-pushed-six-month-core-pce-inflation-to-3-4-worst-in-a-year/
Exactly.
The shorter trends are accelerating but people look at the Year over Year number which has still been in a long decreasing trend. But we’re at a point now where it could easily head back up even with relatively benign prints.
I’m surprised how few macro commenters acknowledge this. I guess most of them aren’t tracking it monthly as you are.
Core PCE YOY looks pretty good due to goods being massively negative. Core Services PCE is still at 4%
I don’t see anyone talking about this. Though Powell did address “base effect” in a prior FOMC press conference (the one before yesterdays).
Is it a 2% target, or an upper bound to a target range of 0-2%? Makes a huge difference IMHO.
Target with symmetrical tolerance on both sides.
BEA table 2.8.7 gives the changes to only 1 decimal where you have more precision. If I try to replicate table 2.8.7 from other tables of the indices I can’t duplicate. What is your source and procedure to get the higher precision for delta core PCE?
I also see that the monthly values in the 1% range from late 2023 will start rolling off the YOY calcs so they should start going UP unless there are equally low numbers in next couple of months to replace them. Perhaps this sets up an almost impossible hurtle to get that September rate cut. I realize the FOMC has more brains about this, but perhaps the media need to be disappointed :-)
You can download the actual index values from the BEA in spreadsheet format. The index values go to the third decimal, for example the Core PCE index value for June = 122.324. Then you can use your spreadsheet to calculate month-over-month rates, and use the formula to annualize them.
The rounded numbers in the month-to-month data table can be misleading. For example, the rounded 0.2% could be 0.151% or 0.249%, which when rounded to the second decimal would show as 0.15% and 0.25%. For the table and the widely distributed data, the BEA should at least round the month-to-month rates to the second decimal.
@Wolf – Who bought all that low rate mortgage debt ? I am guessing its clueless or helpless foreign investors & crappy American pension funds.
@Bobber – Its probably deliberate action by the FED. Their wall street controllers could buy these overpriced homes cheap IF there is any major correction again. I am sure they will find creative ways to make it happen. Pre 2008 they gave loans to crappy borrowers, cooked up mbs, cdo and cds to keep the crap system running till 2008. YEAH, i am sure they can make up something different again to rob people (creditworthy borrowers) of their houses in a few years from now.
Our govt, fed & wall street are our biggest enemies. Far bigger than terrorists hiding in caves. Terrorists might kill us in a shot. But the axis of govt, fed & wall street will bleed us forever by 1000s of cuts.
MBS are in every bond fund. There are in ETFs. Life insurers and banks hold them, etc. They yield more than Treasury securities and are also backed by the government.