“We’re balancing the risk of going too soon versus too late. There’s no guarantee in this. It’s a very difficult judgment call.”
By Wolf Richter for WOLF STREET.
Markets have been seeing at least a 25-basis-point cut by September with near-100% certainty. So at the post-FOMC meeting press conference, reporters hammered Powell relentlessly with repetitive and leading questions trying to get him to commit, via faux-pas or purposefully, to a September rate cut – after the FOMC statement studiously avoided any kind of comment about a September rate cut, but instead simply rebalanced the Fed’s focus on both of its mandates — inflation and employment — and not just on inflation.
What Powell said boils down to this: The Fed is now attentive to both of the Fed’s mandates rather than just being focused on inflation. No decision has been made about a September rate cut. There is a lot more data coming out between now and then. If the data shows further progress on inflation, there “could” be a rate cut; or if it shows a “significant downturn” in the labor market, there “could” be a rate cut; but if inflation persists while the economy remains “solid,” there may not be a rate cut at all “for as long as appropriate.”
Here are highlights of what he said relating to rates, rate cuts, the labor market, and inflation.
In Powell’s own words:
“As the labor market has cooled and inflation has declined, the risks to achieving our employment and inflation goals continue to move into better balance. Indeed, we are attentive to the risks to both sides of our dual mandate.
“We have stated [in the FOMC statement earlier today] that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%. The second-quarter’s inflation readings have added to our confidence, and more good data would further strengthen that confidence.
“We know that reducing policy restraint too soon or too much could result in a reversal of the progress we have seen on inflation.
“At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment.
“If the economy remains solid and inflation persists, we can maintain the current target range for the federal funds rate as long as appropriate.
“If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond.
“We are certainly very well positioned to respond to weakness with the policy rate at 5.3%. We have a lot of room to respond if we were to see weakness. But that’s not what we’re seeing. Look at the first half growth number…. It’s not signaling a weak economy. It’s also not signaling an overheating economy. Admittedly, the unemployment rate has moved up seven-tenth. We’re seeing normalization there. Wage increases are still at a high level. Unemployment is still at a low level. Layoffs are very low. Initial [unemployment insurance] claims have moved up, but they are pretty stable, and they’re not historically high at all. The total scope of the data suggests a normalizing labor market. And we are carefully watching to see that continues to be the case.
“We have made no decisions about future meetings. That includes the September meeting.”
“The overall sense of the committee is that we’re getting closer to the point at which it will be appropriate to begin to dial back restriction. We’re not at the point yet. We want to see more good data. The decision was unanimous.”
“We will be data dependent, but not data-point dependent. It will not be a question of responding specifically to one or two data releases. The question will be whether the totality of the data, the evolving outlook, and balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market. If that test is met, the reduction of our policy rate could be on the table as soon as the next meeting in September.”
“If we were to see, for example, inflation moving down quickly or more or less in line with expectations, growth remains reasonably strong, and the labor market remains consistent with its current condition, then I would think that a rate cut could be on the table at the September meeting.
“If inflation were to prove stickier and we were to see higher readings of inflation, disappointing readings, we would weigh that along with the other things.
“It is going to be the inflation data, it’s going to be the employment data, it is going to be the balance of risks as we see it. It is going to be the totality of all of that to help us make the decision.
“It is just a question of seeing more good data. The last couple of readings have certainly added to confidence. We’ve seen progress across all three categories of core PCE inflation – goods, non-housing services, and housing services.
“We had a quarter of poor inflation data at the beginning of the year. Then we saw some more good inflation data…. We want to see more and gain confidence. As I said, we did gain confidence. More good data would cause us to gain more confidence.
“The path ahead is going to depend on the way the economy evolves. I can imagine the scenario in which there would be anywhere from zero cuts to several cuts, depending on the way the economy evolves.
“What the data broadly show in the labor market is an ongoing, gradual, normalization of labor market conditions. That’s what we want to see. We’ve seen that over a period of a couple of years – a move from overheated to more normal conditions. We’re watching the labor market conditions quite closely. That’s what we’re seeing. If we start to see something that looks to be more than that, then we’re well positioned to respond.
“When we were far away from our inflation mandate, we had to focus on that. Now we’re back closer to even focus.
“I don’t think of the labor market in the current state as a likely source of significant inflationary pressures. I would not like to see material further cooling in the labor market. That’s part of what’s behind the thinking. The other part, of course, is that we have made real progress on inflation. We’ve got growing confidence there – but we are not quite there yet.
“If we see something that looks like a more significant downturn [in the labor market], that would be something that we would have the intention of responding to.
“Go too soon and you undermine progress on inflation. Wait too long or don’t go fast enough, and you put at risk the recovery. So we have to balance those two things. That’s the nature of having two mandates. It is a rough balance.
‘We’ve had the really significant decline in inflation, and unemployment has remained low. This is a really unusual, and historically unusual, and such a welcome outcome.
“What we’re thinking about all the time is how do we keep this going? This is part of that. We think we don’t need to be 100% focused on inflation because of the progress that we’ve made…. The job is not done on inflation. Nonetheless, we can afford to begin to dial back the restriction in the policy rate.
“A whole lot of the progress you saw last year was goods prices which were going down at an unsustainable rate, disinflating at an unsustainable rate.
“This [currently] is a broader disinflation. This has goods prices coming down. We’re also now seeing progress in the other two big categories, non-housing services and housing services.
“But the thing is we’ve only got one quarter of that. We need to see more to have more confidence that we’re on a good path down to 2%.
“We look at two goals [maximum employment and price stability]. If one is farther away from the goal than the other, you concentrate on the one that’s farther away. You take the time to reach the goal.
“Inflation is probably a little farther from its target than is employment. But I think the downside risks to the employment mandate are real now. We have to weigh all of that.
“We have a restrictive policy rate. It is clearly restrictive. It’s been the rate that we’ve had in place for a full year. The time is coming at which it will begin to be appropriate to dial back that level of restrictions so that we may address both mandates.
“Certainty is not a word that we have in our business.
“It is the risk of going too soon, and the risk of going too late. We had seven [good inflation] months at the end of last year. We wanted to see more. We pointed out this was coming from goods. And sure enough, the first quarter wasn’t great inflation data. Now we’ve got another quarter that is good. We’re balancing the risk of going too soon versus too late. There’s no guarantee in this. It is a very difficult judgment call. This is how we’re making it.
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Funny. The headline I read was “Powell commits to take rates back to ZIRP because the economy might hypothetically slow down at some point in the future.”
Interesting disconnect.
Having never worked as Fed President you don’t know the nuances of Fed-speak. Or maybe its your interpretive skills that is the disconnect.
Maybe its your sarcasm detection skills that is the disconnect.
“What Powell said boils down to this: The Fed is now attentive to both of the Fed’s mandates rather than just being focused on inflation.”
I’d add that the Fed has started to be more concerned about the labor market than inflation which is only .5% away from target yet way down over the last 18 months.
As such, they will lower the FFR in Sept. The current components holding up inflation are very unlikely to rise meaningfully once the July & August reports hit. And, I just go there as well. The decision to cut WILL BE (unspoken) politically motivated. JPowell does not want to see the Orange Hair Guy back in office.
Personally, I don’t see any sort of material change to the economy through the end of the year. I think we’re in that goldilocks state, again, supported by $2T in deficit spending.
Literally, this level of spending (40% of gross revenue) has skewed everything so far outside the norm that nobody’s models of anything mean anything.
I believe the FED is more concerned with maintaining full employment than they are about getting to 2% inflation. I think they demonstrated that when inflation was at 9% and ever since.
The FRB machinations take time to trickle into the markets. They are trying to walk a tightrope. A large swing FFR could cause larger issues than inflation so they went slow and low to see how it would play out.
Currently they are working fairly well toward the target they are trying to achieve, especially considering the drastic market obstacles of early 2020. Employment was trashed and has come a long way all things considered.
The only thing the fed does well is expand the wealth of the top 1%.
We desperately need new all-time highs…or ELSE
I would argue that the tight rope they are really concerned about is the use/acceptance of the dollar as a means to settle international trade. So far so good and many people (including Wolf) have pointed out the actual number of dollars being used in international trade settlements, BUT with large segments of the global population (Brazil, India, China, Russia, etc.) trading in their own currencies, or God forbid bitcoin, it definitely makes things interesting. Will there be enough demand for treasuries to satisfy the Janet’s funding needs without the Fed buying? THAT is a significant question. Uncle Sam cannot afford the higher rates required to keep demand IMO.
“Will there be enough demand for treasuries to satisfy the Janet’s funding needs without the Fed buying? THAT is a significant question.”
Right now the answer is a clear YES given the low yields on duration. There is PLENTY of demand for treasuries as the global standard for pristine collateral.
Of course. There has always been an asymmetry in their policy. But I think it is okay too. A 2.5% reading on inflation is acceptable compared to a 9% unemployment.
The problem is full employment has not been defined. Should it be 4% or 8% is a good question that Fed should answer. Politicians would say it should be zero. Conservative investors would say inflation should be zero. Unfortunately no one is out in the street protesting for inflation because it is socialized but unemployment is another thing, it only hurts those unemployed.
The other problem is the total ignorance towards asset bubbles. They just don’t seem to care about that at all. Good luck getting any modern central banker to even accept that asset bubbles exist. History on the other hand has been very clear. Asset bubbles hurt way more than 7% unemployment or 8% inflation.
But I guess a lot of monetary policy is also politics
I watched the presser q&a and it occurred to me neither inflation nor employment are their real mandates. They wouldn’t be talking about a rate cut with gdp, jobs and inflation where they are (given obvious biased numbers) if that was the case. No, it’s all about keeping the spice flowing, and that means maintaining the welfare/warfare state, even as it sails off a cliff.
Plus, US employment data is skewed as it only counts people actively looking for work as unemployed.
“In the United States, the unemployment rate measures the number of people actively looking for a job as a percentage of the labour force.”
This does not recognise those who have given up looking, cannot work, or don’t want to work. It is not an accurate picture by at least 1-1.5%.
Good lordie. What a pile of @#$%^&*+?!
1. If you’re not looking for work because you’re a student, or retired, or a homemaker, or wealthy enough to where you don’t want to put up with the BS that comes with working, etc. etc., you should be counted as “unemployed?” You’re totally nuts. That’s not the case in any country, not even in your sacred Canada.
2. If you want to include the discouraged workers, all you have to do is look at the unemployment rates that are broader and include them. The BLS publishes six (6) unemployment rates from narrowest to broadest. You’re just too ignorant to know that, even though I have already told you several times here in the comments? Or are you just a bot and I’m wasting my time here?
The Fed’s legal mandate isn’t “minimum unemployment”, so it doesn’t matter which ill-defined unemployment metric one uses.
The legal mandate is “maximum employment”.
There should be a much stronger emphasis on accurate measurement of employment, its demographic limitations, and the relationship between employment (not unemployment) and inflation.
The available data (household survey) shows that employment peaked last November 2023. Employment is now 2,000,000 to 5,000,000 short of prior trend levels.
It’s pretty much common ground among economists even leftish ones that an unemployment of 3-4 % means anyone who wants a job can get one.
Of course this does not mean the wage offered would be a decent living wage, it might be more like survival. The key prob here is housing. The old old rule of 30 % going to your dwelling has now probably doubled. and at that you may be bunking up.
The adult school year begins in a month and surely at least a million late teens and 20’s will be leaving part or full time jobs.
Question for anyone: do the stats count a part time job as one job, as though it was full time? If so, if a guy quits 2 part time jobs to take one full time, would the stats record one job loss?
Aman, no two household’s “inflation” experience is identical either — the CPI and various other top line economic aggregates hide all manner of variation with the lie implied by a single number.
Thanks for taking the time to post Powell’s actual words, I didn’t get a chance to watch his press conference.
If I was to go by the headlines I saw, there is definitely going to be a rate cut in September. And they wonder why many people don’t trust the media.
I still think that while the Fed talks about watching inflation and unemployment, they are still more worried about potential problems with the banking system.
Can’t wait to see what the realtors and mortgage brokers are posting on Instagram and Tok about this tomorrow!
Funny thing is, mortgage applications are now plunging. No one wants to take out a mortgage when mortgage rates might fall further. This is going to constrain demand.
Correct. Not to mention it will provide the RE agents with yet another argument for their clients to hold their current asking price rather than dropping it. Despite the mortgage loan rate increases, the “high price entitlement” attitude is still in play with many sellers. This also may constrain demand.
I continue to believe only a genuine recession will substantially change the current residential RE market conditions.
For how long? 2 months at best. Once the cut hits and the 30YFM drops close to 6%, applications are going to start rising.
Why should anyone be concerned about mortgage applications when housing is at least 25-30% overvalued?
a 25 bps cut is not going to result in the 30 year mortgage dropping to 6%. the mortgage rate, which follows the 10 year treasury, has already dropped over the last year in anticipation of cuts in the fed funds rate. only if the cuts are 150 bps or more might you start seeing a noticeable difference in the 30 yfm.
It is an absolute bloodbath out there right now.
My brother runs a medium-sized mortgage company in the Southwest and I got to see him this past weekend. One of his former employees works for Wells Fargo and his office has dropped from 157 employees two years ago to 7 employees now. That may be an overstatement of the carnage (they may have increased their call center employees at the expense of local mortgage brokers)
But another take on it is that fully half of the mortgage brokers in the country that were licensed to do HUD loans (or maybe it is the FHA loans… I didn’t really listen that closely) have surrendered their licenses in that same time period.
Jerome Powell is Arthur Burns II
Let this comment be a bookmark that we will be Looking back 3 years down the road and see the above statement to be true.
Maybe he sounds like Arthur Burns to placate the markets for as long as possible but is acting more like Volcker. .
Most importantly, he mentioned (my paraphrasing) that the FOMC is not paying as much attention to the “Sahm rule” due to the extrordinary monetary and fiscal stimulus during the pandemic skewing its accuracy. I’m glad the Fed is examining the situation as it actually exists, rather than relying on checkboxes and rules of thumb that were designed for relatively stable economic environments rather than the aftermath of economic tornados.
That was a good explanation. While at it, he also threw the yield curve under the bus for the same reason, which we have done in the comments here well over a year ago.
Yes, similar to P/E ratios, yield curve inversion apparently means nothing now…
Interesting times.
Yield curve can potentially still “predict” a recession. Problem is it doesn’t predict when. But will be interesting to see if a recession matches the time when it gets uninverted.
The only thing that really “predicts” a recession is a steep rise in unemployment. Recessions are called after they’ve started, so to predict one you have to be in one.
I hate how every MSM talking heads or these Youtube doomers or “pundits” to put it nicely also refer to the “Sahm rule” as this is some kind of Newton’s second law of motion. I guess you have to use something to scare people to get views..
Especially egregious in this manner has to be DiMartino-Booth, how long has she been warning about that collapse of job market and here we are. Another interesting observation is that a lot of these pundits are also extremely right leaning in their view…interesting correlation for sure.
Everybody wants confirmation bias when they aren’t getting their way.
Re: “ Layoffs are very low”
I think that may bite them in the butt — take situations like Walgreens, which is closing tons of stores — but not officially laying off employees — keeping thousands of people in suspended animation.
That type of delaying strategy to buy time will eventually unfold in the next few months as other layoffs and bankruptcies increase. The weakness ahead is greater than hopefully strength.
Walgreens has been closing stores and laying off people for many years. It expanded by acquisition, and it has been shrinking starting a few years before the pandemic. We’ve covered that here. Nothing to do with the economy, but with the Brick-and-Mortar Meltdown. Even the pharmacy business has moved to ecommerce. My HMO here has its own pharmacy system. All the big ones do, order online or by phone and they deliver within a day from the central local pharmacy. Or you get it at their pharmacy in their medical facility. This stuff is the death of Walgreens and CVS. Then there are the big specialized online pharmacies. Walgreens, CVS, etc. all need to find a new business model for their stores (and they are trying but failing).
If I use the mail order pharmacy of my insurance company, there is no copay for a three-month supply of tier one drugs. If I use the local CVS, I have a copay so it’s a no-brainer.
I have pretty much given up going to a drug store since even if they have what I want is it probably locked up and I’m happy to pay more online if I don’t need to stand around as some minimum wage kid looks for the manager with the key to the locked up razors and suntan lotion.
Brick and Mortar pharmacies will always exist as long as controlled substances cannot legally be sold online. This will never change.
You also can’t order decongestants like pseudoephedrine online because they have to check your ID at the pharmacy.
I may be missing the broad strokes but not clear what a 25 point would do anyway, whether it be September or later. Obviously if this started a series of rates cut that would change the dynamic but seems like especially short term treasuries will stay up there. Almost feels like the reaction of the market is just to motivate people to get their money in before it shoots up. Not like a cut is going to massive increased profits although of course will reduce their borrowing costs. It will take a lot more cuts or time to get the housing market going again. Both buyers and sellers benefit from rates going down so staying on the sideline unless not possible makes sense.
Fed rate cut will be completely anti-climatic,a fu*king yawner. The market will not respond at all as it has in the past decade long road trip to ZIRP. The market will hurt as many people as it can when it turns. For Savers whom do not want to be in the Casino they will be fuc*ed, but hey, so what,the Fed nor Congress give a shit about Savers. The Fed nor Congress give a shit about your security. They do care about their security. They will be fine. Their grift from their donor handlers in the Security/Defense Congressional Grift Complex will be adjusted for inflation +++ and a little more on top because the American Tax Chump is picking up the tab. What is happening is our currency is rapidly becoming butt-wipe and Americans do not give a shit. You will have a lot of people buffering you from harm if you stay out of debt. Stay healthy with good food and exercise. Exercise the hell out of that brain too. Wolf Street is a good brain tread-mill. Ever hear the joke about two salesmen confronting an angry bear? One of the salesman pulls running shoes out of his pack. Other salesman asked WTF is up with the shoes? You can’t out run a bear. I don’t need to out run the bear,I need to out run you was his reply. Keep lots of of chumps between you and the bear.
the american people do give a shit about the deprecation of the currency. that’s why people are feeling so sour on the economy right now.
Yeah that was a bizarre comment. I have both young and old people in my life and we all agree stuff costs too much.
Would be hilarious if he hiked it.
Risk is we get a sep repricing
They were all saying ‘transitory’ in 2020/21, for many quarters.
Now they’re eager to see any change in labor or inflation as requiring near immediate interest rate adjustment.
I still wouldn’t trust them further than I could throw them.
As far as I can tell, there is plenty of evidence that the Fed has violated their charter with respect to “stable prices” (just look at home prices -well documented by Wolf). Congress should have done their job years ago and reigned in The Fed and spending, but CONgress is fully owned (via K-street), and negligent in their duty. They have not balanced a budget since Clinton. For the average person/business, if you don’t do your fucking job, you don’t get paid. Fundamentally, CONgress has ONE job, balance the damn budget, a job that they haven’t done for 20+ year, yet, as a demographic, they have enriched themselves immensely. It’s a bit of a self-fulfilling loop unfortunately as we don’t live in a society where bad behavior leads to bad consequences. I’d argue that we have actually been rewarding bad behavior (think MBS, enabled by the Fed) Seems like everyone gets a bailout now. Regardless, capital and talent will go where they are respected, nothing new there. So the Fed’s problem is trying to defend the Federal Reserve Note (the only thing they really control) without killing the host (American tax donkeys). At this point it’s just Kabuki Theater, with poor script writers, if you ask me.
Interesting times.
Kabuki Theater is exactly right.
Um, I don’t think you’ll find anywhere in the job description for Congress that it must “balance the budget.” They just have to pass one — surplus, deficit, whatever.
But they haven’t passed a budget since Clinton! They agree to “continuing resolutions”…
That is NOT a budget! You must be a congress critter!
Wolf,
Based on your recent publication, the 6 month pce rate in June was 3.4 (while it was fairly low in the mid 2s last year till December). This means that the annual inflation rate will increase from the current June 2.6 pce. It’s part of the base effects and the calculation of the annual rate. I don’t see how the annual rate goes down considerably towards 2%. if anything it will be in the higher 2s, or even at 3% (say on average of 1.7% gain over the next 6 months).
Is that also your expectation?
Thanks.
Of course, this is under the assumption that there are no real negative deflationary monthly prints going forward. Or if there is a significant reduction in monthly inflation rates moving forward.
I expect that a second wave of inflation is coming, so I tend to agree. Look at what other Western world central banks are doing. Like it or not they are part of the “dollar milkshake”…
Ciprian,
Yes, that’s part of the annual rates in the second half, and that part is known. The other part of the annual rates will be the new month-to-month data in the second half, and that is not known. So for the annual data to stay where they are now, the new month-to-month data in the second half would have to be very low. And we could get very low data in the second half, but I don’t think it’s the most realistic scenario. So it could very well be that the YOY rates will rise in the second half. They’re already rising in the Euro Area, they’re rising in Mexico, Japan, lots of places the US is tied to via trade, and that have similar issues with still high inflation in services.
Excellent presentation Wolf, and I join earlier kudos for including the actual words used in the presser…
Trying to guess the future is a fool’s errand, but IMO, if Trump doesn’t stop putting his foot in his mouth, his clear advantages continue to go away and he loses again.
Either way, it certainly appears we will have little or no rate adjustments by FRB until after election, and then, Whose Nose???
Good time to buy popcorn futures maybe?
I watched the presser and my impression was that he was leaning toward a rate cut in September. It really stuck out to me that he said something to the effect of that they could cut once or many times (meaning .25 or even more) in September. In that same statement, he didn’t mention holding rates in September as a possibility from what I remember.
What he actually said was: “I can imagine the scenario in which there would be anywhere from zero cuts to several cuts, depending on the way the economy evolves.”
Wolf,
You know I’m not in the ‘Powell is a dove’ camp, but it frustrates me when he says things like this. These idiot reporters will latch on to a phrase like this and use it for misleading headlines about a gazillion cuts. Powell has to be aware of this.
IMO, he should have said “I can imagine the scenario in which there would be anywhere from several cuts to several hikes in rates, depending on the way the economy and inflation evolve.
Hikes are off the table until we get hotter inflation data. All inflation metrics are well below the EFFR, and there is no need to hike now. Over the past two months, inflation metrics were somewhere near benign, after hot Q1. So it makes sense to not include “hikes” in that line.
Fair – but what’s the point in keeping a sept cut ‘in the air’ as you say?
Cuts are also off the table until inflation goes down and stays down, or unemployment spikes – neither of which have happened.
I agree with the policy to keep rates steady, but am scratching my head at the recent messaging. What am I missing?
Yahoo finance headlines that “Rate Cuts Are Inevitable” this morning. I have some things in storage temporarily and I got a notice that rent is going up 40% next month. Pricing new tires I need to buy for the car was certainly a shocker. We are adding another position at work.
The CPI reports don’t feel like they match the grocery bills. I don’t know what to think anymore.
Did they say when they’re inevitable? There will eventually be rate cuts, even if the Fed has to hike more in the near future, eventually there will be rate cuts. So in generic terms, rate cuts are inevitable, just like rate hikes are inevitable, because that’s what the Fed does. But is a rate cut in September inevitable?
“Certainty is not a word that we have in our business.” – J. Powell 7/31
Interesting how the rest of the world equates this statement to mean a 100% rate cut certainty for September… or whatever other certainty fits their particular agenda.
Pay attention to what the man says. He’s not hiding anything. The words speak for themselves.
Two months is a long time for things to change in one direction or the other. Just ask our two presidential candidates!!!!
Have to wonder if there is some eye on election polling too.
I guess I’ve become a real skeptic.
I watched the entire press conference. The repeated, leading and almost heckling like questioning DID get Powell to effectively — if not in exact words, then in affect — admit that there will be a rate cut in September. (And he noted a number of times that a minority of FOMC members wanted to do the cut this cycle.)
Importantly, he threw water on a 50 basis point cut, so it will be a .25 cut.
Old people on social security are getting ucked by the coming cuts. If I have to go back to getting nothing on my CDs, I will be paying many more visitis to my good lunch buddy Chicken of the Sea.
There will be a rate cut IF the data cooperates. There will NOT be a rate cut if the data doesn’t cooperate. That’s what he said a gazillion times over and over again. IT DEPENDS ON THE DATA, that was the core message that he repeated endlessly, no matter how the questions (and you) tried to twist it. How could you miss that?
The Fed already backed away from rate cuts earlier in 2024 because the data didn’t cooperate. Did you have a memory lapse?
This is not meant to be as rude as it comes across, so please forgive me in advance. I’m not some yobbo projecting my wishes onto what Powell said; I’m a retired journalist .
My point was that the Powell responses to which I was referring likely give us insight into what the FOMC transcript will reveal, which is that there appears to be a heavy impetus (heavier than Powell let on in the canned portion) among let’s say ~40% of the committee to cut now.
As well, there’s data and there’s data. If upcoming data is on the fence, so to speak, then members can and will interpret it through the prism of their beliefs and vote accordingly.
Plus, today’s (Friday Aug 2) job report, which IS data (until it’s revised) is another point which points towards a Sept cut, since apparently their “dual” mandate means they’re forgetting aabout inflation because they’re having a cow about employment. Which to me means they aren’t deaf, dumb and blind to political realities.
@ Wolf
@ Depthcharge
Aren’t there three FED mandates?
Yes. Maximum employment, stable prices, and moderate long-term interest rates.
The Fed has willfully re-interpreted the first two, and blatantly ignores the third.
There’s a fourth, unspoken mandate that’s more important than the other three: keeping the US Treasury market functional and ensuring long-term demand for Treasuries.
why is anyone dumb enough to believe zuckerberg that ai is driving his advertising revenue?
No one mentions the fiscal problems having interest rates this high. God only knows how much additional debt this private organization has created by fighting inflation
Below data through Q1. The Q2 update will come when the data is released. Q2 tax receipts soared, we know that already. So the interest payments as percent of tax receipts will drop further in Q2, but then will rise in Q3 and Q4
The article linked right below also includes average interest rate on Treasury debt and other stuff. So look at it if you want a discussion of your topic. But it doesn’t belong here.
https://wolfstreet.com/2024/06/01/spiking-interest-payments-on-the-ballooning-us-government-debt-v-tax-receipts-and-inflation-q1-update/
These are great charts showing that Federal tax revenue is currently growing.
Why is it growing?
1) More people are fully employed and are now paying payroll taxes.
2) Wages have grown (faster than the tax brackets have increased?) pushing people into higher tax brackets.
3) As Biden has said, the IRS is going after tax cheats now and the revenue has increased over $1B.
My experience with the IRS is with my 16 year old dependent daughter who has a part-time job (at $20/hour). She pays more taxes. Also, she mailed her 2022 taxes in via certified mail on time but the Post Office delivered it 1.5 months late. She received a late filing+interest notice from the IRS for about $100 and didn’t know what to do.
We mailed the proof of mailing (which was also on the tax envelope) and the IRS waived the late filing but stated she still owed the 7% interest.
After I calculated the new interest (I could see when the check was cashed), the IRS sent me a letter stating that she owed $2.30.
1) Why doesn’t the IRS check the incoming envelopes for date postmarked? It is certified mail and the date is clear. It is up to the taxpayer to prove this. If they don’t, they pay the late-filing charge.
2) Why is 7% interest still charged in this case?
3) Why can’t the IRS correctly calculate interest? The interest went from over $10.00 to $2.30. Probably because interest is charged on the penalty amount also?
How many people are receiving letters like this and just paying the full amount? It took months of showing the IRS the proof and trading letters.
Thank my 16 year old daughter for her higher tax payments and extra $2.30 in interest for paying down the deficit.
Where did the extra $1B come from? The IRS is watching my 17 year old daughter like hawk and sent another letter this year stating that she didn’t declare herself as a dependent. I just mailed back her tax form showing that she did. The IRS sent another letter saying they accepted it. I hope the IRS collected most of the $1B from tax cheats and not 16 year olds making minimum wage.
/Rant Off
Not sure how much of an impact it has, but another contributor:
Folks are earning 5.5% on their cash and they’re paying taxes on that income. They’re also bringing in massive amounts on speculative stock bubbles, and are either taking profits and paying taxes, or sitting on huge gains that represent large future tax revenue (barring any very much welcome stock market collapses ).
Thanks Ben R!
Yes, CD/Treasury/bank account interest is taxed as ordinary income. It can push you up to the next tax bracket.
Wolf mentioned cash buyers for million dollar houses. They have to be getting the cash from somewhere. Likely cashing out AI stock, Bitcoin, etc and paying short term capital gains taxes at ordinary income tax rates. I’m sure NVDIA RSUs are heavily taxed.
Paul Krugman is saying the Fed should have cut rates yesterday.
That confirms the FOMC was correct.
Paul Krugman and Larry Summers can be relied on to say or write just about anything given the right incentives.
Remember it was Larry Summers who lobbied for deregulation of financial markets and banks prior to GFC and in Krugman’s world QE was awesome and that inflation was transitory.
Their Nobel prizes and familiarity comes in handy to get support for any policy the elites want. These guys grow bigger with every crisis from their prescription. Which is to be expected if you are famous for being famous
Nailed it. They are hacks.
Soft/no landing in danger?
Is it possible that FEDs don’t really have any early peek/insights into being soon published data?
No-one leaked them about the today’s job report? I can’t believe that they have no upper hand for this.
I was surprised by the headlines based on the official announcement, but honestly after reading the presser I can see why the rate-cut mongers are enthusiastic.
To me, this is telling:
“If we were to see, for example, inflation moving down quickly or more or less in line with expectations, growth remains reasonably strong, and the labor market remains consistent with its current condition, then I would think that a rate cut could be on the table at the September meeting.”
That sounds like the base case is cut in Sept.
It won’t require any further weakness in growth or labor;
It won’t require any further disinflation progress (current expectations are enough).
So sounds like the only thing which could derail it would be inflation data coming in above current expectations. By how much and what components of inflation is anybody’s guess. Of course this could happen, but sounds to me like it would take some pretty bad inflation readings NOT to cut in Sept.
85% cut (with about about 5% of that a half point cut on big market decline or real bad job data). 15% no cut. That’s my peanut gallery handicap.
This is an election year and there is ZERO CHANCE of any rate cut by the Federal Reserve in September 2024.
You’re a manipulative cherry-picker to promote your own narrative. Here is why:
You said:
To me, this is telling:
“If we were to see, for example, inflation moving down quickly or more or less in line with expectations, growth remains reasonably strong, and the labor market remains consistent with its current condition, then I would think that a rate cut could be on the table at the September meeting.”
But Powell gave scenarios. Yours was one. And right after it, he gave the other scenario:
“If inflation were to prove stickier and we were to see higher readings of inflation, disappointing readings, we would weigh that along with the other things.
“It is going to be the inflation data, it’s going to be the employment data, it is going to be the balance of risks as we see it. It is going to be the totality of all of that to help us make the decision.
He also said:
“If the economy remains solid and inflation persists, we can maintain the current target range for the federal funds rate as long as appropriate.
There lots of times when he said that it all depends on the data. If the data is bad, there won’t be a cut. If the data is good, there will be a cut. And for you to say otherwise is lie about what he said.
“That sounds like the base case is cut in Sept”
Disagree. IF growth remains strong. IF the labor market remains consistent. IF INFLATION MOVES DOWN QUICKLY! Those are all big ifs, especially inflation moving down quickly, which we know is not at all a given, especially considering the base effect.
IF all of those very questionable things… Then a rate cut COULD be on the table. Not WILL be, not probably or likely. COULD. It’s a possibility.
With news today of further softening labor market and more earning misses, mass Intel layoffs, etc., I wouldn’t at all be surprised to see a cut. But nothing suggests that’s a base case.
I wish PowPow would opine on why services inflation has been so high. Are services really so inelastic? Shouldn’t there be deflation due to lower overhead from the wfh paradigm? Higher rates would seem to impact durable goods and housing more than services.
It’s insane to me how much people spend on advertising the same bs to us online. I don’t wanna buy your overpriced drugs, trinkets, AI nonsense, and I’m shocked at how many people out there actually buy that stuff. Where is the real dynamism, innovation?
Look at the top companies here, what are they doing to help grow the USA? They’re all hyper focused on the big markets in China and India. Getting cheap labor from Mexico and overseas. Used to be that you wanted to grow the purchasing power of the middle and lower class here at home so you can grow your business. Help your neighbor to help yourself. Now it’s all about growing your international market to sell shares. Contracting engineers from India and Mexico? While the young engineers in Silicon valley and elsewhere can’t afford a home to raise a family? Are we really that short sighted? I struggle with the fact the GDP goes up but only the top 1% seem substantially better off than 30 yrs ago. Fed Govt continuing to play games to prop up the bottom 99% to keep spending but losing options with interest payments so high. They’re going to cut rates, try another tax break or stimulus package, and fire up the inflation machine all over again. Because in this tech services driven economy that is the easiest and best option. Noone wants to invest in their communities anymore, and if they do it’s all for show to get huge tax breaks from the local govts. Until the Feds get ultra serious about making sure that companies give back to the USA by ending tax loopholes and punishing offshoring, or white collar unions appear, it’s going to be more of the same middle class gut punch.
Tom S. – just ‘capitalism’ following easier paths to the money (what now comprises a coherent general definition of our American ‘identity’ greatly muddled, and, in terms of our corporations, a quaint afterthought (except for mass advertising) in any event…), as it always has…
may we all find a better day.
Howdy Youngins. Don t forget about Greenspan. ( Maestro ). Pow Pow could easily go down, up, up, down, hold, down, down, up. . 25 % is really nothing to squirrels and why most folks are going absolutely insane over .25 %?????????……… HEE HEE
Wolf,
What do you think the VIX will do in September if inflation goes up a bit and the Fed holds?
Over 30?
Since everyone has drunk the Kool Aid and is convinced that there will be a cut, I would expect a nice selloff if no rate cut.
They will telegraph it well ahead of time through public statements, no big surprises allowed.
Money is not tight. But velocity might be falling. Large CD issuance has topped out as it always does at the beginning of a recession.
Dr. Philip George: “The velocity of money is a function of interest rates”
Only see a deceleration in N-gDp, not disinflation. The Cantillon effect works both ways (the uneven impact to changes in the money stock).
ISM Services PMI Falls to Lowest Level Since May 2020
June is a result of notably lower business activity, a contraction in new orders for the second time since May 2020 and continued contraction in employment
This is good news, right?
These are sentiment surveys of executives. The questions are like this: Last month, compared to the prior month, did your orders rise (=1), stay the same (=0), or fall (=-1). No dollars or units involved. Then the responses get averaged out. 50 = no change. 47 = less than last month. 53 = more than last month. That’s all it is. They have been below 50 for most of the time since mid-2022, and the economy grew just fine. So go to the original ISM report (google it) and look at the chart, you’ll see, nothing to see here.
It’s just that in 2020 and 2021, there was this huge pandemic boom in goods (driven by free money), which ballooned imports but also manufacturing, while services collapsed. But in mid-2022, that historic boom in goods, particularly consumer goods, started wearing off, and sales of services boomed (including inflation in services). I have been discussing this here in my articles endlessly all along since the beginning. Did you miss it?
While I have thought for a while that the Fed will abandon the 2% inflation goal as being unrealistic for the long term… I gotta give them credit. They have made the most out of that goal for keeping rates steady throughout this election year. They are going to ride that horse to the November 5th finish line..
My guess is as it has been all year long… they aren’t going to do ANYTHING before the election unless they absolutely are forced to do so by a 9//11-type catastrophe or a 70’s style inflation breakout. Their November meeting is the day after the election so they can easily put off any decisions until then. This was a UNANIMOUS vote so the vote in September will likely be a few votes for cutting the FFR but not enough to actually do so… and having successfully jaw-boned their way out of getting entangled in Presidential politics… the champagne glasses at the Fed will clink.