But the longer-run rate for its target rose to 2.9%, continuing the series of increases, slowly but steadily rising from the ashes of the ZIRP era.
By Wolf Richter for WOLF STREET.
FOMC members voted today to cut the Fed’s policy rates by 50 basis points, bringing to an end the 13-month plateau between the last rate hike and first cut.
A rate cut was widely telegraphed by the Fed’s communications, including by Powell in his speech at Jackson Hole last month, in the FOMC minutes of the last meeting, and by Fed governors in their speeches after the recent flurry of less than glorious labor-market data. But the size of the cut was not telegraphed.
Michelle Bowman dissented – she preferred a 25-basis-point cut.
This announcement comes after the CPI inflation report a week ago showed that “core CPI” and “core services CPI” inflation re-accelerated in August from July, the second month in a row of month-to-month acceleration. The annual “core CPI” and “core services CPI” also slightly re-accelerated, ending the series of declines. But as Powell suggested in his Jackson Hole speech, the Fed is going to “look through” a re-acceleration of CPI inflation.
The Fed cut its five policy rates:
- Federal funds rate target range to 4.75% – 5.0%.
- Interest it pays the banks on reserves: 4.9%.
- Interest it pays on overnight Reverse Repos (ON RRPs): 4.8%.
- Interest it charges on overnight Repos: 5.0%.
- Primary credit rate: 5.0% (banks’ costs of borrowing at the “Discount Window”).
QT continues at the slower pace announced in May. The Fed has already shed $1.85 trillion in assets since it started QT in July 2022. Today’s announcement said it would continue to shed assets at the current pace.
The “dot plot”: an additional 50 basis points in cuts in 2024.
In the FOMC’s “Summary of Economic Projections” (SEP), which includes the “dot plot,” each of the 19 participants jots down where they see various economic metrics – the Fed’s policy rates, unemployment rates, GDP growth, and PCE inflation – by the end of 2024, by the end of 2025, etc. The median value of these projections becomes the headline projection for that metric. These projections are neither a decision nor a commitment by the Fed. And they change as the economic situation changes.
Interest rates: Today’s 50-basis point cut brought the mid-point of the Fed’s target range to 4.875%.
For the end of 2024, the median projection in today’s SEP for the federal funds rate was 4.375%, so an additional 50 basis points in cuts in 2024. For the rate at the end of 2025, the median projection declined to 3.4%
Longer-run Fed rate continues to rise: The median projection for the “longer-run” federal funds rate rose to 2.9% from 2.8% in the June SEP and from 2.6% in the March SEP, slowly but steadily rising from the ashes of the ZIRP era.
Here is how the 19 participants saw the rate scenario for the rest of 2024, with two meetings remaining (November and December):
2 see 4.875%: No additional cuts
7 see 4.625%: 25 basis points in cuts (1 cut)
9 see 4.375%: 50 basis points in cuts
1 sees 4.125%: 75 basis points in cuts
GDP growth: The median projection for real GDP growth for 2024 was lowered to +2.0%, from 2.1% in the June SEP. For 2025 and 2026, it remained at 2.0% (which is the 10-year average real GDP growth of the US).
Inflation rate: The median projection for “core PCE” inflation by the end of 2024 declined to +2.6%, up from 2.8% in the June SEP. For 2025, it was at 2.3%.
Unemployment rate: The median projection for the unemployment rate rose to 4.4% by the end of 2024, up from 4.0% in the June SEP. For 2025, the median projection was also 4.4%.
What changed in the statement:
The statement changed in many ways to indicate that inflation is getting closer to the goal and that the labor market is now top priority.
New: “Job gains have slowed…”
Old: “Job gains have moderated…”
But left intact: “…and the unemployment rate has moved up but remains low.”
New: “Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated…”
Old: “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.”
New: “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance…”
Old: “The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance.”
New: “In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent.”
Old: “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.”
New: “In considering additional adjustments to the target range…”
Old: “In considering any adjustments to the target range…”
Here is the whole statement:
Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent. In considering additional 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 will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and 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; Lisa D. Cook; Mary C. Daly; Beth M. Hammack; Philip N. Jefferson; Adriana D. Kugler; and Christopher J. Waller. Voting against this action was Michelle W. Bowman, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting.
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The devaluation of your quality of life will proceed as scheduled. Asset prices to the moon, purchasing power of savings and wages to zero!
Laughably false. Where do you come up with such nutty notions?
Starting your career under a regime of financial repression engineered following the 2008 crisis will do that to a person. It’s not so nutty when you realize the only way to save money — truly save money, as in preserve your purchasing power — has been to risk your hard earned savings in any assets you can get your hands on.
You are correct. Beginning your career in the past 15 years means you have had very low interest income on your savings and high home prices (unless you bought 2009-2012), combined with reasonably high income taxes.
Tax rates will increase on your generation because of our massive spending and resultant debt.
If you can accumulated cash, your likely to feel equities (and other riskier asset classes) are the only way to advance your wealth and this is probably true – if you can hold and ride out the inevitable ups and downs.
Andrew speaks the truth.
Yep, you’re correct, a very zen analysis of the obvious. Some people can’t see the obvious!
agreed.. totally.
the realities faced by those of different age cohorts are vastly different. for anybody (woe to those starting a career in 2007/2008) post GFC, your statement is very relevant…
people of or in other age ranges cant really understand it equally because they are not in the same ‘stage’. and no matter how much somebody from another age cohort wants to commiserate, they simply dont (and never will) have the same perspective and viewpoints.
The Fed decision was either good or bad depending on ones beliefs. Up front, I currently think that the monetarist economic agenda that we have been operating under is corrupt and has reached it’s nadir.
Something for nothing has a sell by date.
On one hand, 50 bpts is like a fog horn, warning about rocky shallows ahead. The world economy is overextended and the stuff is about to hit the fan. The Fed has apparently changed it’s definition of acceptable inflation from the mysterious 2 pct target to the current level. Time to cut interest rates before deflation, the fall in asset prices, sets in.
Your privilege is showing, I hope for your sake this Comment was satire, otherwise it says a lot about how obtuse your way of thinking truly is
Powell did address housing.
He indicated that he did not see it falling and that it is a supply issue. Not an issue the fed can tackle.
So housing will stay the same if not have slight increases unless supply gets better.
I don’t see any reason to over react to this rate cut. It’s all to tighten up the job market, which is good atm. The fed just does not want it deteriorating any more than it has.
I mean hopefully stocks shoot to the moon but that’s just my personal preference atm. Haha
How nice of Powell.
After some areas went up 100% from 2020 – 2022 due to the Fed’s policies, he can now sit back and claim it is a supply issue causing the problem.
I sure hope all the fed cheerleaders are happy since the fed has stolen the future generation’s chance at home ownership. It is unbelievable that any could possibly support this group of criminals.
No Fed official can ever publicly admit that the Fed made huge mistakes. Some admit to huge mistakes after they’re no longer at the Fed, and some quit the Fed over those wrong policies. But while they’re at the Fed, they cannot go there. This also applies to QE.
@Wolf
I wonder why is that? Federal Reserve officials aren’t politicians subject to the whims of voter discontent & election cycles. Their jobs are always safe for 14 years regardless of their performance.
Why can’t they simply admit they f’ed up hard in 2021, apologize to the American people for the misery they caused, and make it clear they’ve learned valuable lessons & will act differently next time?
Instead, Powell keeps publicly insisting they did the right thing in 2021 and were responsible for the speedy recovery & robust economic growth that followed. Everyone knows they made a big mistake then. Every economist knows it was the biggest policy error in 50 years.
My future generation of seven children all own very nice homes. It’s anecdotal, true, but this is nonsense about robbing the children. Cite some facts, please.
Escierto,
If they already own their homes, they’re not a future generation of homebuyers.
I already own my home too, but I don’t think the cohort entering their homebuying years over the next decade(+/-) should be priced ouf of home ownership.
Excessive price appreciation also hurts existing homeowners with no plans to sell – prop tax, insurance etc. keep going up.
“No Fed official can ever publicly admit that the Fed made huge mistakes.”
Of course. But for a brief glorious moment in 2022, it really looked as though the Fed was going to try to fix the monstrous housing mistake even while avoiding taking blame for it.
This “not our department, not our problem” attitude regarding housing didn’t start to infect their messaging until later, after it became evident that their priorities for actual meaningful action looked note like bailing out uninsured Silicon Valley startups’ bank deposits and putting a floor under the stock market, and that nothing was going to be done to deflate the housing gigabubble.
Yes the FED made mistakes regarding buying mortgages. Absolutely no doubt. They are correcting this mistake in a way that will least disrupt employment markets and inflation.
Would it be nice if they apologized? Sure, but what is that going to do? Apologies aren’t going to make houses drop 20%.
Also for those who are looking for the FED to “fix” the housing market, how do they do this? That is a legitimate question. What would you have the FED doesn’t to help fix the housing market?
The FED cannot set policy, all they can do is set rates. Sure running short term rates up to 10% would probably fix the housing market, but it would only be because the economy would go into a deep recession.
That is the literal definition of cutting off your nose to spite your face.
You keep putting everything on the Fed… I am no fan but how about personal responsibility. You have people out there trying to unload houses with tapped out HELOCs and other crap tied to the house, so the value of the house has to be inflated if they are going to pay it back. Banks being the drug dealers they are, are always happy to provide the “high”, but you can choose to say no. GFC should have been allowed to play out, blood in the streets and all. What we currently see in the housing market is the long term side effect.
Wolf, it’s not a “mistake” as much as it was a purposeful disintegration of the current generations future. They knew what they were doing, how could they not? I don’t claim to be a financial expert but I sure as hell could have told you inflation was not “transitory”
Do you really believe that the fed is just so blatantly awful at their supposed job? The more likely scenario is that they simply are disingenuous and know exactly what they have done
anyone who says housing is a supply issue is either lying or stupid.
the population hasn’t increased enough in 10 years to justify tripling prices. what has changed is that people aren’t selling extra houses.
There is a lot more nuance to housing than nominal growth in population. I think know and admit that. There is no more land. Land closer to population centers does also not increase. Demographics and family units relative to population matter a lot as well. The largest generation, children of what used to be the largest generation are all of the age to be buying. Families are smaller, so the ratio of homes to population has changed significantly. The list goes on.
And builders are not reducing prices.
@Frans G
I agree with you that supply is not a big driver of the rapid increase in home prices. California has built homes every single year for the past five years but has seen the population shrink most years yet prices have still gone up so supply is not a big driver.
There are many neighborhoods in America that are close to 100% owner occupied and prices have gone up in almost all of those areas so it is not caused by the slight drop in owner occupied homes nationwide (that I believe is mostly related to people “renting by choice” like Wolf. If you have a great tech job on the Peninsula you would be a fool to buy a home and pay twice as much a month to “buy” a home on the same street as a nice rental unless you were 100% sure you were going to stay in the area forever.
P.S. If you look at the charts of markets around the US that Wolf posted last week you will see that most markets have just “doubled” (not “tripled”) in the past decade…
C – “there is no more land”? Have you flown over Kentucky or Tennessee lately? Lush green land all over.
and if “housing is not the fed’s department, not their problem” then why in the world did they get in the business of purchasing Mortgage Backed Securities?
“most markets have just “doubled” (not “tripled”) in the past decade…”
Ah, well, that’s all right then.
>He indicated that he did not see it falling and that it is a supply issue. Not an issue the fed can tackle.
LMAO. Schrodinger’s stimulus. We buy trillions in mortgage bonds to stimulate housing, but also the housing market is something that we couldn’t possibly have any impact on.
What an absolute joke.
“…hopefully stocks shoot to the moon…”
S&P 500 market capitalization now over $57,000,000,000,000.
Three companies valued over $10,000,000,000,000.
They are ALREADY on the moon.
You will get an opportunity to buy stocks MUCH lower.
Stock market only goes up baby!
Just kidding
But I’d be waiting forever with that strategy.
Businesses are making money today. And with these cuts they will make a ton more. 👋 get in on the game baby!
You know the fastest way to address supply is to punish the cartels and hoarders? It would do wonders for the economy if youngsters could spend their wages on more than just housing and education.
They are. Seems like they’re wasting it on all kinds of crap.
“He [Powell] indicated that he did not see it falling and that it is a supply issue. Not an issue the fed can tackle.”
It was covered here, Powell actually said in his testimony to Congress:
__________
“However we want to interpret this, it’s fascinating. Powell told Congress on Tuesday: “There’s no question that higher interest rates are making it harder to buy homes in the short term. But in the longer term, this is the best thing, particularly for younger people who are not yet in the housing market.”
…
These higher rates are “the absolute best thing we can do for the housing market and for the economy [so as] to sustainably bring inflation back down, so that people aren’t talking about it anymore,” he said.”
__________
However, VP Harris indicated in her debate intro that housing was a supply issue, so this is now the message that the government will broadcast.
Many people are vehement that the Fed is a-political, but it staffed by financial sector representatives (12 regional banks and 5/12 members of the FOMC), and the government (7/12 members of the FOMC). So clearly (it seems to me) there are influences on it.
Yup!
I suggest that housing prices, currently, are an artifact of ZIRP and need too fall by somewhere between 35 and 50 pct for the natural market to clear and a semblance of natural equilibrium be attained.
Not gonna happen. The thing about the Fed deliberations, they’re not public. It’s just them and they’re stock holders, at arms length, who decide such things. Obviously they don’t think the assets are grossly overpriced.
This is a bit overexaggeration, but I think the current pace of QT is too slow to deflate hyperinflated asset prices and those exorbitant prices will inevitably fuel consumer inflation for years to come. I think there is no risk of recession but risk of reclimbing inflation instead. May be not to the moon, but will possibly it will accelerate again from here.
Inflation indices are carefully manipulated to exclude asset price inflation. Wealth inequality in the U.S. is too steep for stock market gains to trickle down to broader consumer prices. During the first Internet mania (1990s) CPI averaged around 3%.
On the other hand, maybe the Fed decision improved the lives of the most important constituency, the only one that matters. The 90 pct of Americans who aren’t rich. The source and the strength of this great country.
It’s hard for me too imagine how the Fed’s decision improved the lives of the majority. Lowering the cost of debt to entice dweeps to pay the going price. Clearly the dweebs were under the influence of the nesting instinct.
Take a good look at a 10 yr minus 2 yr treasury chart going back 20 yrs. or more. What you will see is every time interest rates peak, along with a yield curve inversion, the cutting of rates signals the start of recession. Welcome to the 2024 recession.
That is quite an impressive list of qualifications that are required to be fulfilled to confirm that we are, in fact, living in a recessionary environment, innocently, unaware.
Jdog: As Wolf has helped us observe, the treasury market seems to measure something different than what it used to.
The relentless manipulation of rates and expansion of credit is the culprit.
I heard something about a 100bps skew that made sense (at the time), and I also see the 10-2 is now approaching the 100bps level of un-inversion.
As dang states: numerous conditions have to be satisfied to be a recession.
The 10-2 indicator is usually pointing to something… even bigger (that gets a fancy name in history).
Andrew, yhea agree in sentiment. The income inequality has grown, and is still growing. That growing wealth gap can be extrapolated, as you said. And no doubt with inflation, in both COL and assets, then those least able, are challenged first and significantly; they are experiencing financial repression. Some people could do more for themselves; but some can’t. Moreover, there needs to be a policy place where people can work and earn a living; that was there from say 1950 to 1970/1990. Since 1980/1990, both government and central bankers have been complicit, and those with positional or political connections have gain first and significantly. Will income inequality reach the extremes you indicated? It’s possible. It exists elsewhere and in history too (fudalism). And certainly the last 30/40 years are a sad reflection, and it is hard to see a change given how institutionalized income inequality has become. Maybe rational minds will eventually dominate, as peace and prosperity are better supported when all boats float or there is a balanced social contract. Anyways, I admire that you spoke up.
Which of course brings us to the fundamental question about how did it begin.
I will assert that it began during the Reagan presidency. Somehow, the benefits granted to the American families were redefined as a reduction in corporate profits, a bad thing.
If you entered the adult world in 2009 and played your cards right you could very well be sitting pretty whilst being totally average.
You’ve been able to finance and mortgage things at next to nothing. Want a new car? Hope you like 0% or 0.9% financing. House? 2% to 5% mortgage please.
Low interest rates and skyrocketing equities are a win win in some cases.
Grab a house after the housing collapse with very little competition and low rates. Prices were also dropping. Maybe rinse and repeat once or twice until you hit 2020 and get a house right before they skyrocket in price at a historically low interest. You now own a very expensive house (on paper) at a very low monthly payment, socking away principal every month.
Same with equities, if you’ve just been investing in index funds and maybe a tech ETF or two this entire time you’re doing VERY well right now.
Cash is for suckers, your only cash should be your emergency savings, put everything else to work. Don’t get fancy and think you’re Buffet.
I agree hanging onto your dollars is silly.
Signed,
Average someone who graduated college in 2009
Bingo,
Alex gets it.
You just assess the game as you go.
Wow cheap rates, I’ll get a car.
Wow cheap stocks, yes plz.
Wow cheap houses here in 2012, well ok!
Fast forward to 2020 and we were like wtf is up with toilet paper prices? Luckily did 8 sams club orders for last months prices. Bam.
Stay ahead of the curve, stop complaining, look around and see what the smart money is doing.
I was about your current age in 2008 and I had a choice of going the traditional route that you described versus going off-trail. Average guy with a wife, kids, and mortgage. I would have done well either way, but the difference is that I had 17 years of absolute freedom where I owned my own time, results, and failures.
Another big plus is that I make annually what I would have saved if I went the traditional route. Maybe for another 25 years with 2-7% increase after inflation. I work at my leisure, but I work everyday b/c I like to.
For me, cash is king. I love the 5%+ risk free return. Still love it after the cut. Cash is what you need to get the deals from folks who overextended or desperate. I recently purchase a very nice piece of property when the person was close to bankruptcy and had to fire sale and close within a month. There will be other fire sales where cash is king. Cash is SPEED. Speed wins deals where other sharks are lurking.
Reason why I am here and writing this is that younger folks need to rethink their thinking and beliefs. The old farts here 70+ have wisdom and history, but they are mostly out of the game. Wolf is sharp and let’s folks come to their own decisions. Figure out your own game plan. The government do not give a two shits about you and your family. You own that. Good luck.
Well thank you for your candor.
I will point out that most of the planks of your procamulation are demonstrably false. I know, economics is not a science, rather more a game plan.
Yes! I could be considered a Millennial (by Year of Birth only), and I stepped up quite a few social classes thanks to the Magic Money Machine (QE) those ~15 years. I always knew it was BS, smoke & mirrors, but also that cash was trash at the time.
You can’t win if you don’t play the game. Expensive cars, financing almost anything besides a house unless you’re rich, especially financing phones and wasting money on subscriptions and conveniences are what really is keeping these young people from getting ahead. I guess most of them know it, but do it and complain anyway. Others need financial education. Whining really doesn’t help.
I will never tire of this multitude of humble brags from those who have “made it” here. All by their own virtues (such as the children who all own houses), just like our national Hero, thedonald.
No luck in position, class or timing will be credited for an individual’s “hard work” just do the same as one did 40 Years ago! /s
Exactly. How exactly is this supposed to work in practice? “I was born to rich parents so you should have been too?” “I was lucky in the stock market so you should have been too?”
And remember that nearly all of those gains were zero-sum transfers of paper wealth. Your net worth only went up because other people are being forced to pay more for what you have. Is the suggestion here that everyone should become wealthy this way? By pulling ourselves up by the bootstraps at a national scale?
You don’t have the money from gains until you sell. If all the people with big gains tried to cash out, stock prices would plunge and the gains would vanish. Low rates and or skyrocketing stocks won’t last forever
This isn’t feeling very believable.
Unemployment went over their expectations, so they’re acting quickly to put a lid on that. *But* at the same time, they’re predicting inflation to continue to improve, despite the fact it’s also behaving worse than their previous hopes/expectations.
Everyone knows the recent unemployment rate increases were driven by increased immigration (both lawful & illicit) and increased labor force participation, NOT layoffs!
Powell and economists keep hammering that point home over & over again. His press conference has portrayed current economic conditions as highly rosy.
This move was purely about pleasing Wall Street!
They do. But a cut 7 weeks before the election isn’t going to materially change voters’ economic perceptions. And rate moves take months to fully work their way through the economy.
Most Americans will evaluate what happened during the full 4-year term of the current administration. Just because inflation is almost at 2% right now doesn’t cancel out the 25% cumulative inflation over the last 3.75 years.
“This move was purely about pleasing Wall Street!”
Nope. 100% CYA move. The Fed didn’t like being “too far” from consensus, as indicated by the two year Treasury yield. He cares more about feeling a sense of “belonging” with his peers than pricipled action. “Independent Central Bank” is a joke.
Pow Pow just need a good group hug… People have been so mean to him.. he has feelings too just like all of us…
He should have had a “Mission Accomplished” banner behind him at the press conference, as he delivered data point after data point that all indicators are above being in line with the 2% inflation target, including the current level of wage growth.
Finally, financial conditions were looser immediately before today’s rate cut announcement than they were in 2019 at this same time of year, the “good times” as Wolf calls them. After this cut, financial conditions will likely get looser.
All the animals at the zoo have been set loose, watch out for the lion or you could be dinner.
Ill expect people’s rent to rise along with everything else, flipping the red light to green…..oops, there goes the giraffe down the street.
Who controls treasury yields? Wall Street.
Wall Street ALWAYS wants lower rates.
Treasury yields are so low relative to economic conditions because an entire generation of fixed income investors have been conditioned to believe central bankers will step in to monetize the debt during every recession.
Home Toad,
I *never* know what you’re talkin’ about, Dude.
Which in turn has an effect on the upcoming presidential election.
Robert (QSLV)
They only worry about unemployment because they need that rent.
Caution is for tightening. When it’s loosening, it’s full speed ahead!
They tightened with rate hikes of 75 basis points, three of them back to back in 2022. Funny how quickly people forget.
They called it “transitory” and put off tightening for a year. Funny how quickly people forget.
I didn’t forget. As you well know, Wolf, consumer inflation in 2022 had exploded to around 9%, on top of the absurd housing price spike. The Fed had visibly lost control, and had no choice but to do those three hikes notwithstanding the whining from Wall Street.
The situation is very different now. There is no emergency in the labor market or anywhere else, housing prices remain elevated, and inflation, though down, is still above target (and occasionally shows signs of reacceleration). Caution in cutting–if cutting is even truly necessary, which it arguably isn’t–would certainly be called for by these circumstances. It’s nothing like 2022.
Bless Michelle Bowman for at least denying Powell the appearance of consensus on this decision. Of course, I would have liked to see someone make the argument for holding (and maybe someone did, and we’ll know in five years).
…and, ho hum, stocks hit another all-time high today. So, yeah, it’s a tad bit different from 2022 when conditions for over a year had been screaming for a pivot but the Fed had been asleep all that time with their foreheads on the “buy” button.
Thank you Wolf for the side by side comparison of their changes in stance.
For now on I am assuming 3% inflation is their target and I am planning accordingly. They seem to be ok with going into a series of cuts without even getting to 2%. All of the telegraphing of a desire to get to 2% seems performative.
Of course. It’s a de-facto target increase without actually calling it that, knowing a formal increase would be politically toxic. Just continue to insist you’re targeting 2% but give yourself a seemingly infinite amount of time to get there.
The SEP estimates a return to 2.0% in 2026. That would be 5 straight years of above-target inflation. Good lord.
The Federal Reserve says F Main Street America. As long as Wall Street is happy and gets their artificially low rates & inflated asset valuations, who cares about the little people?
Bond market barely moving, and balance sheet still tapering, why should we plan for higher inflation? Labor market softening means rates are going to come down, especially with inflation in the 2-3% range. It’s not an exact science.
maybe there are some lag effect. Economy measures takes time to take full effect, I think.
But they forgot our friends, the drunken sailors. For each 5 basic points reduction they drink a shot of tequila. They now are drunk AF buying bitcoins and investing in whatever .
Hangover is waiting around the corner!
I am retired and comfortable. I don’t need more material possessions and I am going to live as I have always done regardless of the Fed and their interest rates. No spending binges coming from me!
Why assume?
Powell said 2%. He was quite clear
He’s not a witch doctor, he’s a banker that just had a committee meeting. They’re quite boring affairs
Why assume? Because Wall Street was clamoring for the big cut for some reason. Any guesses as to why? Obviously they’re expecting another payoff. You can’t worship the wealth effect and then turn around and pretend it has no effect.
They haven’t gotten services inflation under control at all, but hey they got their boogeyman “wage-price spiral” under wraps so they can pat themselves on the back.
He’s not even a banker, he’s a lawyer.
Inflation will soar as the price gouging to boost corporate profits gets into full swing this Fall.
Your good with words…gouging and swinging are two of my favorites.
And you’ve got vision, this fall after another 50 is chopped and with the election…a perfect distraction for the profiteers to swing and gouge.
As long as my phone doesn’t blow up and take my head off, I’ll remain calm and try to keep my scalp.
They have been leaving themselves this “out” for a long, long time. I’m surprised hardly anyone ever pointed it out (I hope I did–I actually can’t remember). Powell at his press conferences would always refer to policy remaining restrictive until inflation was “on the way” to 2%. That leaves plenty of room for interpretation, and it always gave them the opportunity to declare victory somewhere between 2.5 and 3 and start withdrawing punch from the vodkabowl.
So the value of the buck gets halved in 24 years now rather than 36!
An outrage. I hope it backfires on this digustingly corrupt country. I’ve had it. I’m sure I’ll get flack from a few Fed sympathiziers on here, and I really don’t care. Inflation still through the roof, assets at all time highes, and inflation reacceltating, and these jerks decide to cut like we are in a serious recession. Slowing of the labor market which is still doing fine is a bullsht excuse. Go ahead and slam me, Fed apologists.
Reactive to inflation, proactive to unemployment. Maybe the high(er) unemployment was going to be transitory.
F these guys
I agree. When I look at Wolf’s housing bubble charts, I want to barf. The Fed is not a friend to the average American.
@Idontneedmuch Average Americans will not be paying Powell $100K to talk at a luch after he steps down so he is working to make the people that pay $100K/hour for a speech (or hire him for a $1mm+ consulting gig) happy (just like every Fed Chairman befroe him)…
Exactly. Every Federal Reserve chair since Volcker has spun through the revolving door to work for, consult for, and/or give $100,000/hour “speeches” to Wall Street following their “public service.”
It’s disgusting and a disgrace to this country.
I’m not a fed sympathizer, but I’m not a fed denier either. People bitched about them moving up too slow and now whine about them coming down too fast. People swore they weren’t going to raise rates when they said they were going to and they did. People swore they were going to drop rates when they said they weren’t and they didn’t.
If you actually watch and listen to the fed, they make it really easy. They tell you what they’re going to do in advance and then they do it. What’s so corrupt about that? They’re probably the most transparent bankers in the country.
They do deserve some credit for tightening in 2022-23, but they had to. Inflation had risen to 50 year highs. It was the #1 issue in America and inflation was all over the news. They couldn’t just sit idly and pull a BOJ.
Every other time in recent history, they’ve been FAR more dovish than suggested by their own projections or warranted by economic conditions. Look at 2013-16; why the hell were rates still at 0 after all that time. Look at 2019, when a minor stock market hiccup caused a full policy pivot from tightening to easing.
I can guarantee that barring any unexpected inflation resurgence, rates will likely go lower & decrease faster than shown on today’s dot plot. The Federal Reserve works for Wall St, which has shown time & time again that when policymakers yield an inch, they ask for MORE.
I was arguaby a fed sympathizer in defending their decision to hold rates steady over the past ~year. And I generally agree re transparency – they always tell you what they’re going to do.
But I’m still just not quiteeee agreeing with their decision to cut 50.
Powell said a lot of stuff at the presser that defended a small cut, which I didn’t agree with going into the meeting but felt was a reasonable argument… but why 50 and not 25?
It also doesn’t feel like that much has changed from July… unemp up a smidge… inflation down a smidge… I know Powell pushed back with his words, but I’m still not convinced cutting 50 made sense.
I’m open to arguments to the contrary.
“but why 50 and not 25?”
Caution when tightening. Full speed ahead when loosening. That’s the institutional bias, and it was on display today even in Saint Powell.
Pea Sea – but they had no problem with multiple 75bps hikes.
What’s corrupt about it? You really have to ask? There is no reason to cut rates, let alone 50 bps, when inflation is still high and rising and the economy is doing just fine, including labor. I can’t believe you even asked such a ridiculous question.
Inflation is HALF of their policy rate.
I think that the Fed is deserving of derision. Just because they appear to know how they can fix their fifteen year screw up, reinflating the 2008 bubbles as a way too minimize the losses that rich people accidentally lost, it’s actually extremely difficult.
Inflation is through the roof? LOL
What crazy measurement are you using to measure economy wide inflation? Are you one of those Shadows tats nuts?
My apartment rent increased 8% just a few months ago. My insurance rate increased 20% a few months before that. I’ve already been told my rent increase for next year, and it will be 9%. Egg prices almost doubled within the last few weeks. Are you living under a rock?
I just bought 2 dozen eggs at Costco for $4.99, that’s $2.50 per dozen. You need to shop around for eggs. Cheapest eggs at our Safeway are roughly double that price.
In terms of rents and insurance, yes, inflation is alive and well. Our auto insurance went up 20% again. The CPI for auto insurance is up 50% since 2021 and that about matches out experience. Rents depend on local market conditions. In markets where lots of new higher-end rental apartments have come on the market, rent increases have slowed or stalled. But rents of single-family houses are different. All this is services inflation, and it’s not likely to just go away, though overall, it too has come down from where it was.
I suspect much of the rent increases in the last decade are driven by de facto price fixing by RealPage via all of their customers…a huge story few are talking about.
If RealPage is in fact allowing for collusion by corporate landlords, then consider the impact on the overall housing market. If apartment rents can be fixed to maximize profits, then there is no reason for the build-to-rent guys to charge less for a SFH than a comparable apartment. Take it a step further and how the selling price of a SFH is always influenced by the potential rental value.
I think if RealPage goes down, it’ll have huge impact on real estate.
Eggs come in various quality.
There’s actually a recall on some atm for salmonella I think.
I find Organic Valley in the 6 pack are ridiculously priced but taste the best for me personally.
Add a little california olive oil and mmmmm. So good.
It’s great that prices are now only up 3 ish percent year over year.
But when people are talking about inflation, they are talking about the 30% decrease in the purchasing power of their dollars since 2021. It’s not like we only have a collective memory of 12 months.
I like to think a bit conspiratorially, but I’ll be the first to admit it’s just me talking and without any evidence:
People on here love to say cuts near elections are political or look political.
Maybe Jerome and company really think they’re saving democracy from a monster. Or, they just don’t want to have to work for a monster again. How would you like to be a highly skilled professional, and have a foolish layman boss trying to micromanage you?
The Federal Reserve only affects the Federal funds rate when the real problem is the interest rates on Federal Reserve Treasury Bond rates. There was a comment by Jerome Powell to a Congressman at the adjournment of some hearing that the Treasury Bond interest rates were lower than they would be because of foreign demand. Since the Federal Reserve has declared it is not stopping inflation by definition of the “two (2) percent target,” the the only solution is foreigners to stop buying those Treasury Bonds; with the side benefit of adding a pressure to reduce Federal deficits. Since the geopolitical policies of all countries are not exact matches at best, it would seem that each country would want their money to stay at home investing in their own nation’s development.
How are the yields on US Treasuries in any way a problem other than being far too low?
Foreign holdings of treasuries have held constant nominally for quite some time and they have not been financing recent deficits.
Imagine you’re Japanese. Your country’s central bankers have stuck their heads up their a**es for the past 4 years & pretended inflation didn’t exist, and suppressed government bonds to NEGATIVE yields.
U.S. bonds are paying much higher, positive yields AND the U.S. economy has brighter growth prospects. Isn’t it a no brainer to park your money there?
The Federal Reserve can’t do anything to prevent foreign investment (and Congress won’t either as they’re drunk on big spending.) All they can do is the ugly race to the bottom with ZIRP & QE like 2008-21.
“ U.S. bonds are paying much higher, positive yields”
Higher, yes. Positive? Depends.
If one looks JUST at the moment, ok.
BUT if you’re considering any amount of duration (take a 5- year breakeven) it’s not so clear.
As the data churns, it appears that the specter of a sustained positive yield is anathema to the highly indebted (looking at you unk Sam).
The American consumer is shockingly sober when compared to the drunk uncle who is doing everything he can to train us that there’s NO RISK, so we should be all-in on financial mania.
Apparently the 60’s to the 80’s Japanese market went up 17 fold.
I mean wow! 1700% is crazy. Those guys got rich and then got TF outta their market
Lol
The Fed has done a lot to encourage foreign demamd for Treasuries, i.e. the FIMA repos.
Well, if I were an Italian speculator selling short 30 year bonds at 2.5 pct and covering my short position by buying 30 year Treasuries paying 4 pct. The logic becomes clear.
Ok, I was wrong, the Fed did cut in 2024, and a “crisis cut” at that. I thought things were going well? That’s what the incumbent party would have us believe.
Anyway, just watch those mortgage rates plummet now! (I’m kidding)
You gotta pay better attention :).
Long live inflation!
Powell and all of them need to go. Higher rates did nothing, and now they’re cutting already. I guess homes will go up another 50-100% in the next few years.
Powell even repeated the real estate industry’s idiotic talking point about “unfreezing the housing market with lower rates.”
Then he kind of hedged a little at the end by admitting that lower rates will also increase demand by bringing more buyers into the market.
Get ready for Housing Bubble #4, guys!
hmm, last time I checked housing bubble #3 never burst…in order to have #4 you need #3 to crash first…if anything expect #3 to prolong or maybe the new normal…what a joke..
The interesting thing is Housing Bubble #3 (2020-22) actually showed up in the inflation gauges as accelerating services-shelter inflation, while #1 (2003-2008) & #2 (2012-18) did NOT.
I guess for certain overheated markets (Miami etc) the upcoming mania will just be an extension of Bubble #3. Certain markets like San Francisco did cool off a bit over the last 2 years.
I thought we were still on Housing Bubble 2.
Doubt it. I am one of the bad guys that has been flipping for years. Should see the initial surge of that exact “housing Bubble 2.0 mentality, but once everyone sees for sale signs in their neighborhoods, panic usually unfolds. Everyone wants to sell. Market floods with fomo and the seller buyer scale tips. We are also coming into the tail of a historical major cycle. It’s like clockwork. You won’t get confirmation until after it happens. Only then will you come back and regurgitate that it has happened.
That’s how it happens. Suddenly, the asset price proffered by a desperate seller seems high. An offer to take the property off his hands for 60 pct of the asking price is accepted.
That point was totally ridiculous. The mortgage rates are already down.
Rates have to come down regardless, there is 7.8 trillion of US Treasury debt that needs to be rolled over from now to the end of 2025. It’s as simple as that. Nothing else matters.
The Federal Funds rate has nothing whatsoever to do with mortgage rates which are based on the yields (interest rates) on 10 year US Treasuries plus around 3%.
I can’t insert a graph into this reply, however if you Google. “fed funds rate vs mortgage rates” you can find graphs over the last 50 years that say otherwise.
Do not confuse the delusional people with facts…
Correlation with 10 year is much better. Basically lock step.
Who would afford them
Higher rates did nothing? Sure if you ignore economy wide inflation dropping from 8% to 2.8%. I don’t find arguments that require willful ignorance to be very convincing.
We very much need higher all time highs. Otherwise it’s just painful to contemplate the demise of our wonderful wealth effect. Fear not…the brave governors acted decisively to further increase wealth inequality. Those who have much get some more. Bravo!
I may have to disagree. I think it is all about the labor market.
They would rather have people be fully employed and mildly complain about high inflation rather than having no job and not being able to afford shelter or food.
Those later people who have no job and have nothing to do tend to have time to go out and protest and do illegal things to get food. Look at any country in the world that has high unemployment usually has higher crime.
LOL…..I am guessing the FED is counting on the Government to subsidize the higher housing costs that will come with lower rates. Just like they already subsidize food (food stamps) and farmers subsidies.
So your probably right about QE though. Future QE will be targeted into specific areas by future government Inflation Reduction Bills. haha
This post is being typed out with a sarcasm tone.
I’ve been laid off twice, both in my early career when I could least afford it.
Being unemployed sucks, but in a long-term healthy economy, recessions should be frequent (every few years) but shallow, and recoveries are quick. The vast majority of recessions aren’t like 1930 & 2008, and won’t be unless other imbalances build out of control for years.
Instead, current policymakers think of recessions not as part of the natural business cycle, but as calamities that need to be avoided at any cost. They’d rather print $10 trillion dollars than let a mild recession happen.
Bankers will be bankers.
Let’s hope for rampant upcoming inflation in the next months and a 1980s repeat of wicked high interest rates for a decade or two.
XoxoxooxX. A geopolitical earthquake may just do that. Fingers crossed.
10 year is highly correlated with FFR.
It’s very rare for 10+ year yields to move upwards for a sustained period while the Federal Reserve is in a long-term easing cycle.
I hope so too. The Federal Reserve hasn’t had to make any truly difficult trade offs in recent decades, and they lucked out this time with rapid disinflation amid a strong economy.
If there’s a stagflationary scenario in which they have to sacrifice workers or the US Dollar, judging from how dovish this committee is, they’d probably tolerate 6% annual inflation over 6% unemployment. Maybe it’s best we didn’t have to find out.
Don’t expect a resurgence of inflation in the short term. It will likely take eight months or more, and by then it will be “too late” for The Fed, because they will have already cut rates to 3.5% by then. Whoops!
Volcker cut rates too early, initially. Then when inflation came roaring back, he shoved in the knife. I think Powell will have the same experience.
More data; same mistake.
Fed did good by frontloading with 50bps. It was time for a recalibration of rates. Glad he talked about the Payrolls data being falsely elevated.
Michelle Bowman dissented – she preferred a 25-basis-point cut
Respect for her on that, too bad she is the only lone voice…
Hooray for WS, they got what they wanted and now just like feeding pigeons, they are going to want more and more…
As for Pow Pow…I guess when he said higher for longer, he meant asset prices like houses, hype stock, and Crypto will stay higher and longer…oh silly you…not rates, especially since we’re not quite at 2% inflation yet…
Whatever happened to younger people who need a reset on home prices? lol…
Powell did talk about housing.
Said he can’t control the one thing causing housing to be so expensive, supply. Only building more houses can control that.
And also he said business people are saying 2024 and 2025 will both be strong economic years.
So take that and run with it.
And again that fits 2022 was bad, so 2023 pretty good, 2024 good, 2025 good. 2026… bad?
if 2024 and 2025 would be strong, then jobs would be fine on their own, without cuts.
your narratives aren’t even consistent with each other.
There is literally nothing wrong with the economy.
It’s like you just bought new shoes and are finding problems with them.
They’re fine! They’re just not your old shoes. C’mon! :)
Yeah I wouldn’t expect any less from PowPow or anyone at the FED. It’s never their fault, remind me how we got to this whole crazy price spike and lowest mortgage rates on history again..I am sure the FED had nothing to do with that too…
When it comes to the cause, oh it’s not me.. then when it comes to fixing the problem… oh sorry can’t do anything about it… how convenient.
I still remember that idiot Powell going on TV right after the initial spike and blaming home prices on “people moving to the suburbs”.
That’s not exactly true though. We know a lot of potential sellers are sitting on their hands waiting for buyers to come out because “everybody knows” interest rates are going to go back down. And here they are, going back down. It’s not just the cut today, it’s forecasting 2(!) more this year alone.
$25K down courtesy of your federal government and its taxpayers when that legislation passes…hold your breath. Some evil, greedy taxpayers may object.
That legislation proposal has no chance of passing whatsoever.
People see a headline and it instantly becomes law 🤣
It was posted in jest. “Hold your breath”
If Democrats win the trifecta next year, it will pass. Congresscritters tend to be very deferential to a new president of their party, and the pressure is high during a new administration to show they can get things done. Look at 2021.
I don’t think even the Dems are dumb enough to want that to pass. That’s the kind of thing you say just because you know you can blame someone else for it not working out.
LOL $25K even if passed in SoCal is like $200 and two cheese burger as far as down payment goes…not that it will have any chance of passing
That already happened. It was called 2004-2008.
@phleep,
Absolutely. And I made sure my girlfriend at the time took advantage of it. I can’t remember if she pocketed $10K or $15K of taxpayer money at the time, because the government paid it over several years at tax time. This is not a far out proposal. It is a proposal that already passed previously. Adjusted for inflation, I would say it is a considerably smaller proposal this time.
So without any recession or black swan, they want to get rates down under 3%. Sure doesn’t leave much room to step in when something breaks. They must know something we don’t- new wars aren’t possible, pandemics can’t happen, climate change will never impact the world. I should’ve known better than to think they’d do the right thing and start with 25bp in this healthy economy.
Over the next year or so, sounds like a significant chunk of ~$10t of liquidity will return to the stock market and RE prices… brace yourself accordingly, because the Fed knows, nothing could ever break!
It’s by design. They’re itching to return to QE, which politicians & Wall Street love. A 2.x% “neutral rate” leaves little room to respond to shocks, so they’ll have to go back to QE once at the zero lower bound.
No, the Federal Reserve has no intention of shifting from QT.
Jackson Y,
Complete nonsense. Wishful thinking?
So 4.75 is now equal to a 2% neutral rate?
One of us failed math. I let you figure it out.
Well the market didnt love the dot plot. Yields higher and the market is flat at 2:30 pm CDT.
Wow. All I can say is wow. I’m stunned.
Inflation increased from July to August, economic numbers are robust, showing growth. In my humble (very humble) opinion this was the wrong choice to lower by a whopping 50 bps. Again, I’m totally stunned.
Well, as Wolf said, Wall street already priced in the rate cuts into market rates so what will happen now is anyone’s best guess! I don’t see real estate going crazy like everyone here seems to think. I think prices are still too high for that to happen but again, now it’s anyone’s best guess from here what will transpire…
I thought prices were too high in 2019.
Would have never believed they could go this insane, and that the government would do everything in its power to prop up the megabubble at the cost of everything else.
The government has made it clear they are working for the oligarchs and billionaires, not the average American.
How so? Why would you say that?
So it has always been. Do you think anyone who is poor even votes? In Texas one third of eligible voters are not registered. Of those who are registered only half vote. The two thirds who sit out elections are not wealthy.
Escierto, I think you’ve got it right. The sad thing is that the stupid mofos who have very little are too stupid to take legal, corrective action to right the wrongs.
I guess they’re waiting for the second coming. And the oligarchs are proactively planting those seeds.
Do the poor vote? Is voting the “corrective action” HowNow refers to?
When did the vote for allowing massive budget deficits happen?
How about the one that embraced MMT?
There’s a generation that has been sold on the system (paid promotors). They have theirs and are retired. “Same as it ever was” to them, who lived through the greatest economic expansion in the history of mankind.
They see the same opportunities they had: a home that costs about a year’s wages (because all the kids are making a mil out there), companies that take care of them (by not providing pensions, selling expensive but crappy insurance and getting a tax break for a 401k match)… just look at the profit margins and wage increases of the last 40 years compared to the 40 years before that: Apples to hay.
I think it just depends if there’s been more sellers sitting on the sidelines or more buyers sitting on the sidelines.
Price means nothing, it’s supply and demand sellers > buyers = prices go down, buyers > sellers = bidding wars.
A lot of sellers have been sitting on the sidelines with vacant properties hoping to maximize the amount they can get for it by waiting until rates drop. Also of buyers have been sitting on the sidelines because they were priced out or hoping prices would drop.
So TBD
We are now looking for a house, a smaller house. I have two realtors sending me new listings from a few distant areas. We can hardly believe the number of homes (based on posted photos) that are vacant. I’d guess that 80% of the listings we’ve seen are vacant houses.
Well if you are stunned you weren’t paying attention.
I’ve been spending the last month getting my surfboard in Posistion to ride this wave. 🏄
It’s the biggest financial event since Covid. People have been clamoring for it for a long time now.
Don’t listen to the noise, listen to Powell and Wolf.
It will end. You think it won’t, but it will. By end, I mean collapse. Funny thing about excessive greed and hubris, it clouds all logic and common sense.
DR, if I were a gamblin’ man, I would not bet on a collapse.
Hownow:
You never know what’s going to happen. We live in a very unstable world and country. The financial system of this county is a house of cards. You’ll see. No one thought the music would end in 2008 either. This too shall pass, and I hope soon,
If it takes us 5+ years to get back to 2% inflation are they really doing their job? The timeline for getting to 2% inflation just keeps getting pushed back and yet they’re lowering rates. Inflation actually has come down much slower than expected and they’re lowering rates.
Seeing as they have ample room to cut, they could have waited to see actual signs of economic weakness before cutting without doing much damage. Consumer spending still strong, jobs still being added, yoy employee comp is still strong, gdp is strong – the rise in unemployment is because of immigration, not job losses. I guess things being back to normal is considered bad?
New fed mandate appears to be – “avoid recessions at all costs, inflate bubbles, but never let them deflate”
When I was in college I remember learning that mild recessions (not GFC type) were a normal part of the business cycle to prevent bubbles from getting out of hand and reign in excess speculation. To remove market inefficiencies and then encourage new growth coming out of it. That it was healthy.
This killed whatever little faith I had left in the our public officials actually doing what’s best for the country. Long run inflation kills nations, causes more political unrest, and large wealth divides – but who cares as long as something unpopular like a mild recession doesn’t happen. One our way to becoming like South America
Funny thing is my dad told me this almost 10 years ago and I thought he was just being all conspiracy theorist, but he basically said “be an asset holder”, the middle class is going to slowly disappear and the wealth divide will continue to grow and we’ll slowly become like South America. This is intentional by our politicians, no one actually cares about a middle class.
It’s okay because technically it’s transitory. After heat death of the universe, inflation will be 0%.
Inflation is like your economy being on black tar heroin.
It’s real bad.
We had to throw it in an ice bath and turn off the rock music. 🎶
Now you can turn up the music a little bit hide the spoons man! Lol jk
@MM1,
Bravo! Great commentary.
Your Dad is a smart man, It is not that politicians (of ALL parties) “don’t care about the middle class” it is that they care about the rich people that fund their campaigns more. If you want to get rich in politics and become a multi-millionaire owning multiple $1mm+ homes you need to do what the rich people that fund your campaigns want. P.S. We are not becoming like “South America” we are becoming like “Almost Every Civilization Throughout History”. I’m a big history buff and the people with money and power will almost always work to get more money and power fom medievil Europe to California in the early 19th century before we bacame a state there was not much of a “middle class” in the 20th Century as America expanded to rebuild Europe twice we had a decent sized “middle class” but we are unlikeley to ever see what helped grow that “middle class” again…
“Be an asset holder” especially makes sense to me given the potential disruption of AI. I may be ignorant on that, but I have land, debt-free for now! At some point I can choose to liquidate from there. Having that, makes up for a lot of missing talent and brain cells. AI might know a lot of things, but we still live in physical space, and a tangible asset is a tangible asset.
AI will just make people more efficient.
Instead of reading their email, they have AI scan it.
Instead of watching YouTube or reading a book, they have AI scan it and give them a short synopsis.
Not really sure how that improves your IQ as a human, but seems to be where it’s going.
Overall AI is just like when Microsoft came out with the first few versions of Windows, I’m sure workers trained on typewriters struggled with it. It’s just to boost GDP a little.
You could either be a country of 1 million workers who work on a problem. Or you could be the US and have the same problem solving power with 10,000 workers. You’re improving your ratios.
Another use, they say, was that AI is used in advanced modern warfare, for instance to track enemy missiles flying at a target. You can track like 10,000 accurately and then shoot them down with your existing advanced weaponry.
So yeah efficiency and to make younger generations more annoying to older generations haha
And people will stop feeling real feelings. They will just be told how they feel.
JeffD, that’s not an AI development. Being told what to feel has been going on since the pyramids were built.
That’s the soft landing following the vertical takeoff.
I was wondering if the fat lady is in the plane or on the ground.
Powells latest move probably killed off the fat lady and her most splendid voice. Now all that’s left is the baying of the burro.
My sentiments on the rate cuts are unimportant but to snuff out the fat lady is just sad.
Your father is a wise man.
“If it takes us 5+ years to get back to 2% inflation are they really doing their job? The timeline for getting to 2% inflation just keeps getting pushed back and yet they’re lowering rates. Inflation actually has come down much slower than expected and they’re lowering rates.”
I suspect asset booms / bubbles (stocks, housing) pull money out of the broader economy and consolidate into these sectors; additionally high societal debt (google NY Fed Report on Debt and Credit) further pulls money out of the broader economy. These act to dampen demand and reduce keep inflation low (see “secular stagnation” which was a big discussion point a few years ago).
Historically, when these counterbalances did not exist, it took years for the country to build up the political will to force the recession to hard-reduce aggregate demand and thus inflation.
I graduated college in 2005 with a degree in Finance. After the GFC it was more like having a degree in Ancient History. My dad was big on owning a home, but I couldn’t land a decent job to afford it!
Powell was right. Inflation was transitory.
I want some of that glue you’re having!
“In the long run, we are all dead.” — J.M. Keynes
So in a way, everything is transitory.
Higher asset prices benefit the government in many ways. Increased revenue from capital gains, increases in property taxes and so on. And of course slightly higher inflation benefits them as well, in addition to servicing less interest on the debt. Obviously there are downsides but wasn’t clear keeping rates higher for longer was going to have much effect. Not clear the impact monetary policy has these days. Not saying it is non existent but much less so than in the past. Unless inflation rears up again seems like more cuts ahead. Perhaps corporations will be more strategic with price gouging so it isn’t as apparent or perhaps they got them where they want them for now.
Powell and his cronies are eating newborns for breakfast, laughing at the masses with flesh in their teeth. These are the policies which lead to revolutions.
Not really. Revolutions occur when the masses really have nothing to lose and the US is nowhere near that. It could be considered a step in the correct direction though! People, for whatever reason, still have faith in the ballot box, or perhaps just distain for the other side. A united front is not in the cards but of course sorely needed.
a lot of young people feel like they have nothing to really live for. you aren’t paying attention if you think otherwise.
It scares me that the youths (at least those who do not stand to inherit these inflated assets) will be deeply discounting heir future. As in, gambling on wild crypto (here it comes, with lower rates) and other fads. And some politically are stoking that. There needs to be a broad (enough) path to capital formation, for the social contract to work.
Indeed. I’m 36 and most people I know that don’t have rich parents have ended up in the trap of low wage jobs and high rent. I’ve been there as well and I feel like kids are basically livestock to the modern economy; your job is harvesting you for cheap labor on one side and your landlord is harvesting you for everything you have on the other. You can’t board the asset price escalator because you have no assets. And then older generations who have ridden the escalator to the top call you lazy.
The only thing that helped me out was some recent inheritance money and the pandemic. I got to catch a break from being harvested for 8 months during lockdown, and was able to build up some savings because I was making three times as much money from unemployment as I was making working. So far the pandemic is the best thing that’s happened to me.
There certainly are no politicians objecting to the results. Senator Warren wanted 75. Maybe it’s four dimensional chess and she’s counting on price controls.
the uniparty all work for the rich despite what they say.
I don’t think so. But it’s hard to want to “work” for people who don’t have the wherewithal to at least vote. Escierto’s point earlier.
Dang, you’re still here? I thought that might’ve been you who was arrested on the golf course in Florida. That guy seems like the type to blame his problems on other people too. I still think you should go to Mexico where rates are higher and find a nice pueblo to live in. Plenty of ex-pats for you there to vent about the U.S.A. with while migrants pour through your property on the way up here to find a better life.
You are quite a dull person, I’ll give you that.
“Powell and his cronies are eating newborns for breakfast”
hmm…I wonder if you type that into an AI image generator, what that picture will look like? Might be a cool avatar picture for you
You are hilarious! OMG, revolutions! The mass of people in this country cannot even be bothered to get up off the couch to vote, let alone throw Molotov Cocktails! You need to get out more.
You forgot to say they are corrupt and deserve to be jailed. Don’t forget about kicking puppies and fisting unicorns.
Your imagination is boring.
DC
You’re still around !
That’s amazing in light of the Fed interest rate cut.
I would have expected your likely explosive rage would have taken you out by way of a massive stroke.
Best wishes.
– It was just what I expected. No surprise here.
– Mr. Market is quite clear: the FED will cut another 100 basispoints in the (near) future.
The Fed has been promising rate cuts. So not really a surprise for anyone. The 10-year yield jumped today on the news and stocks ended lower because it was all already priced in.
10-year yield up again today. We should keep an eye on this…
In the second quarter the big banks started to look shaky because of the higher Fed rates. So….
No, they didn’t. Unrealized losses declined further in Q2 and net income in Q2 rose to $71 billion (+11% yoy). FDIC data.
The Fed micromanaging again. They don’t learn
I think growth is slowing and we will be returning to the pre-pandemic economy, when growth was perpetually low, interest rates were repressed, and asset prices were high.
Here’s the problem. If it took QE, twist, and ZIRP to maintain growth prior to the pandemic, what will be required this time, with asset prices and debts at much higher levels? It helps to have the debt at the government level, but there are limits in that space as well. We don’t know what they are, but exceeding those limits would be catastrophic.
“If it took QE, twist, and ZIRP to maintain growth prior to the pandemic,”
Opposite. Those policies got in the way. These super-low interest rates of that time (result of ZIRP and QE) were a serious handicap for growth because the cash flow to yield investors was cut to near nothing, who then could not spend that money, which slowed spending.
One of the reasons why spending held up so well since 2022 in the US is that yield investors had more cash income to spend — and that includes retirees with $100k and $200K and $500k saved up that suddenly made 4% or 5% or more interest. Everyone understands that by now.
You can see where the Fed is heading with its “longer-run” interest rate projections. It has been raising that at every meeting in 2024 with a SEP. In today’s SEP, it raised to 2.9%, the highest in many years. They understand that longer-run Fed policy rates need to be higher than they had been in 2008-2022.
A healthy economy needs a healthy cost of capital in order to thrive — even the ECB has seen that now, after they spent years bathing in NIRP idiocy.
Another reasons is that household balance sheets are very healthy this time around because the government has taken on all their debt.
I think it is very unlikely (with utmost modestly because no one really knows the future) that
1. QE will return
2. We will be naturally stuck in a low growth setup
Longer term interest rates will stabilize at a higher level and stocks will look stupid at their lofty valuations and gradually churn lower. Slowly investors will realize that Fed is no longer being run by Greenspan. It is abundantly clear that all central bankers understand that ZIRP and QE was an error. Of course they aren’t allowed to say it and never will.
And in the interim anything and everything is possible.
It appears fiscal deficits of 6% of GDP are needed just to manage 2% growth. That seems like a low growth economy to me.
Only a portion of government spending goes into GDP (investment and consumption). Salaries, transfer payments, etc. don’t go into GDP. If and when recipients spend this money, it goes into GDP, like ALL salaries. Total government (federal, state, and local) accounts for only 17% of GDP. It’s just a small-ish part of it.
“They understand that longer-run Fed policy rates need to be higher than they had been in 2008-2022.”
Should they be applauded for having understood that there has to be a cost of capital for an economy after nearly 15 years.
That this understanding came about only because they got punched in their mouth by inflation says a lot about their understanding.
Who pays the price for their idiocy?
The Fed’s learning curve is inverted.
“A healthy economy needs a healthy cost of capital in order to thrive — even the ECB has seen that now, after they spent years bathing in NIRP idiocy.”
This is one of the most infomative things I have read on this site. It is subtle though and I don’t think people understand why this is.
An absurdly repressed cost of capital does provide benefits to an economy. For example, I don’t think Amazon or Tesla become the companies they did without a drastically repressed cost of capital. It probably happens slower and in a less drastically way. However this benefit is more short term and has long term costs. Sort of like speed (amphetamines) or cocaine. A nice short term boost to productivity, but the longer term costs are brutal.
A repressed cost of capital just encourages people to take on as much risk as possible. What this does is makes enterprises that are sound and probably going to do well anyway rocket to the moon instantly. The risk takers make obscene amounts of money rather than just making really good amounts of money. It also makes people who embraced maximum risk with slightly shakier ideas (i.e. Twitter) obscene amounts of money. It also allows people to make obscene amounts of money with terrible ideas (Overstock). Risk is the name of the game.
It gives people who have narrow skills other than a tendency to embrace risk an overly large influence in our society. I think a more reasonable cost of capital makes better decision makers rise to the top.
What an embarrassingly low cost of capital does is allow unprofitable businesses to thrive and undercut the prices that profitable competiors charge, destroying/slumifying the profitable businesses in the process. This can also happen in a high rate environment, however, only a few such unprofitable companies are able to stay alive for 15 years or more in a high rate environment. I’ll take the high rate environment, the one where throngs of tiny leech companies go out of business quickly, thank you very much. You need tough antitrust laws in that environment though, so the pseudo-monopolies can’t destroy promising new companies, but I am all for strong antitrust laws, too. At the moment, antitrust laws are just weaponized bludgeons for people to go after other people that they don’t like. No “real” antitrust cases appear in US courts any more, certainly not with the post-1970s DOJ.
There’s never been confusion about that here. Tell it to our beloved monetary authority that applied ZIRP, year after year for six years straight.
If they don’t take adequate flack for that blunder, as well as the QE blunder, they will try it again, because all we hear from Wall Street is praise for high asset prices and calls for more monetary stimulus.
Wolf, you’re making a point that I have never considered or even heard of, that a “healthier” cost of capital is a good thing. But when the economy was dead in the water, as it was in 1982 and after the GFC, would a very slow Fed rate reduction, or an increased Fed rate have “strengthened” the economy? I doubt that either scenario would have been tolerated.
50 really!? Caution on the side of error for them, all of them! Author Burns repeat possible? Wolf? Thanks.
Powell is the worst FED chair in history, BY FAR. He has permanently distorted the US economy and destroyed the quality of life and future of the working classes and the young. He is evil.
I don’t know, he is the running for sure but there were plenty of terrible ones before. We seem to get a never ending hit of them since Greenspan… which begs the question, maybe it’s the system and state of where we are at than just one person..
Laughably and totally false.
J Powell is beating out Carter’s Fed chief Miller who’s total qualifications for Fed chief was the CEO of a golf cart company. Miller was a total failure, and Powell is running to beat him out as the worst Fed chief in US history.
Swamp Creature,
That’s funny. The Powell Fed brought inflation down from 9.1% to 3.3% core CPI and 2.6% overall CPI WITHOUT crashing the labor market and without triggering a big-fat recession. That’s a rare feat.
So inflation is still too high, but the Fed policy rates are far higher than inflation. And so there’s room to cut to avoid that the labor market tanks.
“The Powell Fed brought inflation down from 9.1% to 3.3% core CPI and 2.6% overall CPI WITHOUT crashing the labor market and without triggering a big-fat recession. That’s a rare feat.”
They did so begrudgingly, after a bunch of “transitory” nonsense and doing everything in their power to entrench it. It’s like a paramedic shows up an hour late to a car crash, sits down, has lunch, calls his boss to ask for a raise, takes a nap, then shuffles over to the wounded and uses his foot to do a few CPR pumps on the chest of the victims. Not impressive. Derelict.
Powell’s great accomplishment is he broke the middle class including myself. I’ve now moved into the ranks of the lower middle class. My dollars buy 20% less than they did 3 years ago. I now work 18 hours a day including weekends when I and Ms Swamp are suppose to be retired. I am now in the 22% tax bracket and pay more taxes as a % of income than I have ever paid in my life. Add in 5% Maryland tax and 15.5% self employment tax and you’re looking at 40% of our income going back to the government to pay for one boondoggle after another and to make sure the rich fat cats gets to keep all of their carried interest loopholes, and J Powel’s cronies on Wall Street are made whole. Congratulations J Powell, “You’re doing one heck of a job”
On the positive side, I am thankful though that I am not in the ranks of the homeless population which seems to be growing in leaps and bounds here in the Swamp. These tents are cropping up in everywhere. This place looks like a 3rd world country.
Swamp Creature
If you’re complaining about being in too high a tax bracket (22% you complained), then you’re complaining about making too much money?
Wait, did Wolf just endorse soft landing… or no landing? 😱
LOL8008
I’m in the camp that thinks that inflation has not been vanquished, that it may rise again. But it’s a lot lower than it was, and rates are much higher than inflation, and so it’s time to cut, and when inflation rises again, it’s time to hike. What’s the big deal? That’s how the Fed used to do it. Somehow we have a whole generation here that thinks that rate cuts are permanent.
SC
Sorry for your situation, but I’m seeing similar where I live. I was working with seniors for awhile, many not making it now when they were doing just fine in 2019. It’s criminal what’s happening. This is no longer a country I recognize anymore. And then you have the greedy on here, and all they care about are their precious stonks which I pray collapse to zero soon.
How do u find the time for all these posts?
“The Powell Fed brought inflation down from 9.1% to 3.3% core CPI and 2.6% overall CPI WITHOUT crashing the labor market and without triggering a big-fat recession. That’s a rare feat.”
LOL! Yeah, we’ll see where we are in 1-5 years. This is NOT the 70’s or 80’s, the DEBT is a problem now. Moreover, the Fed only did this, after 15 years of ZIRP, when in truth The Fed should have been incrementally increasing interest rates in Obama’s second term. None of the structural problems in the financial plumbing, nor have the years of irresponsible fiscal been addressed. If the Fed were truly “apolitical” they would force CONgress to act responsibly. Those of us with assets, especially productive, income generating assets, are loving it, but the cost will be high. History is very clear on that. hedge accordingly.
Wolf,
In high cost areas like DC you need $125K to be considered middle class. You live in another high cost area like SFO. I’m way below that and just went into the 22% tax bracket. Every additional dollar is taxed at that rate. So, I’m lower middle class and paying taxes like a rich guy. I’m screwed. Nothing I can do about it.
Totally fair. What you are saying is that the interest rate is high relative to inflation and that means room to come down. How far down do you think relative to the present data. 4%, 3.5%?
But doesn’t that also mean that the rates were high for far too long? I believe the core CPI was already in the 3% range back in June.
I think he’s better than Bernanke & Yellen for sure. But it’s hard to be worse than those two.
Powell isn’t even in the same league as Greenspan when it comes to bad FED chairs. He was the FED chair who set the U.S. on the path of repressed cost of capital. Sure his successors took it to a higher level, but he planted the seeds and cleared the path.
It should also be noted that Powell recognized the problems that the FED was causing long before most at the FED, but a certain bankrupt casino operator and felon bullied him into continuing along.
You blame Powell for you falling from the middle class to the lower class. Do you take any personal responsibility for that?
I know plenty of people who were born in the 90’s in the lower class (or way low end of the middle class) who have thrived and are now doing well. What did Powell do to you that he didn’t do to them?
JimL –
You do not know the first thing about me or my finances, yet you make ASSumptions. You’re not very smart, are you?
“Personal responsibility” the last three decades depends on your timing in entering the job market and purchasing a home. People that entered the job market in 1997, 2006 and 2019 had a way different outcome than entering in 2000, 2009, and 2023.
Depth Charge, you sound like Trump. Total exaggeration. And the use of “evil”. Right outa the “Demonize Others” handbook.
Bernanke gets the honor of being the worst IMO. He blatantly lied to congress about not monetizing the debt. What would happen to you or I, if we lied to congress? It’s a club folks, it always has been, but now it’s just in our faces. Global feudalism. Nothing new under the sun people.
Hedge accordingly.
Interestingly, the 10-year yield jumped by 6 basis points today, to 3.72% currently, the highest about two weeks.
As Powell was talking, it bounced off by 8 basis points from its kneejerk drop.
JP sees thru inflation with his xray vision, and financial conditions loosened, somewhat more dramatically, mortgage rates remain high which supports higher housing prices. He wants to keep the economy going and stock markets ATH. Interesting that bond yields went rogue today but that means higher prices higher inflation higher costs to borrow. I suspect a big move in GOLD is coming but if the bond market goes rogue then gold will pullback. This is like the 95 PAUSE, longest ever, in which the yield curve did not steepen with the pace of rate cuts and eventually inverted in 00. We’re heading for some kind of blowoff in stocks.
Supposedly the stock market takes a hit when the first rate cut appears. Maybe the algos will reinforce that expectation.
Mr Richter did the treasury yields jump because the Dot Plot was underwhelming for Wall Street or because the .50 rate cut was unexpected and inflation could be unanchored again? Or none of the above?
Hard to say why markets do what they do on an hour by hour basis. I just think it’s interesting.
It was a classic sell-the-news event. Treasuries have been in a roaring bull market since Q1 and the S&P 500 closed higher in each of the last 7 business days. Many Wall Street Bets type retail kiddies were betting on stocks rising and yields falling in the likely scenario of a dovish FOMC meeting.
S&P 500 futures are now ripping higher (up 50 points) and federal funds futures are pricing in even more easing through first-half 2025.
It shouldn’t be too surprising, while the 10-year is influenced by Fed rate, it’s also about inflation expectations. With a big cut, the Fed just announced fighting inflation is not their #1 concern any more and they are willing to risk above-target inflation in the name protecting the labor market.
Right or wrong, I’m not sure, but I think everyone can agree today’s Fed action increased inflation risk and that’s not good for the 10-yr.
On the flip side, it shows the Fed will continue to exercise extreme caution and reduce rates beyond what rational investors expect. That’s good for bonds, at least until the Fed loses control, like they did in 2021/2022 when inflation ran wild.
“…when inflation ran wild.”
And then they hiked faster and more than rational investors expected they would, and kept them there longer than rational investors expected they would.
Well that’s because cutting 50 now and another 50 before the end of the year likely means that inflation will be higher in 2025 than it would have been had the Fed done a couple of 25 point cuts in 2024.
Bond market isn’t dumb.
Too much hemming and hawing going on here.
Phew, glad that’s over! JPow said a couple years ago: He wanted to see a positive real rate.
Whelp, he did! It’ll disappear like a unicorn over a rainbow, just like JPow himself.
Did it, dun it: time to retire. Cut another 50-150 bps before the wave of federal refinance, then watch the debt inflate away!
I’m just glad I haven’t participated in the outsized wage gains that the numbers have shown in the past years! /s Nor is my mortgage sub-3% (it is however quite affordable).
My lifestyle is amazing but at one point I had hoped for something like “upward class mobility.” I suppose good health and contentment are far more valuable!
The rest of the world needs the “Emperor is not wearing any cloths, moment”. Perhaps some from their younger generation would dare to say it to their corrupt oligarchs and politicians. Until then our party / orgy would continue :)
I think history tells us, by far most often, with such levels of disruption, the New Boss is usually worse than the Old Boss, or at least brings a lot of mass-mortality. Sorry to say. Look at France 1790’s, Russia 1917, Germany 1933, China 1950’s-1960’s, even Russia recently …. But anyway, we don’t have a big enough population of distressed people to equal those.
And with about 63% of the population holding an inflated-value home, and many codgers collecting social security, the revolution is a non-starter.
The Fed cannot engineer growth in real wages. Happiness is not in their scope. What they can do is leave some options on the table in case of economic shock, a moderation of rates will allow businesses to borrow more easily to expand production. Rates are still quite far off the 0% lower bound.
Like so many others here, I felt the Fed should not reduce interest rates while inflation was still well above 2.0%. Based on the media hype, I was begrudgingly expecting a 25 basis point reduction. We got a 50 basis point reduction. This tells me, more clearly than ever, that safeguarding the purchasing power of the U.S. Dollar is not the Fed’s priority. So watch out.
Here’s a question for Wolf and for this group generally: Under what circumstances could the Fed lose control of interest rates? What could cause the rates that the Treasury must pay on Treasury bills and bonds to increase regardless of the Fed’s interest rate policy? What type of black swan event could overtake the Fed and the Treasury? What could cause a significant reduction in international purchases of Treasury bills and bonds? What else lurks on the horizon? No rants, please. I’m looking for insights that I can use as an investor.
“Under what circumstances could the Fed lose control of interest rates?”
Ironically, a recession. Fiscal stimulus as a percentage of GDP would go through the roof. It’s “only” about 6% now, in a time of overheated, overextended lifestyles and spending. Today’s Fed Put wasn’t aimed at the markets, but at keeping those overextended lifestyles going.
I love this question. It haunts me. At some point the US debt will get so big that the only way we can sell it is to offer increasingly higher yields.
Market interest rates for US debt are not directly correlated to Fed rates.
If the market sees risk of default, it demands a higher yield.
Current path of US debt is concerning. The politicians are unbounded in their promises of more candy. Worries me.
As long as the Federal Reserve doesn’t explicitly close the door to future QE, investors will always buy Treasuries and bid them up to prices not justified by economic conditions.
Some thoughts:
1) High inflation relative to the rest of the developed economies, i.e. if inflation is 7% trying to sell our debt at 3% would be hard if other developed economies have inflation at 2% and are selling at 3%.
2) Really bad gov’t deficits, we get the rates we get because it’s considered a risk free investment, but if there was any risk of default the yield investors would demand would be higher.
3) $ not being used as the global reserver currency which is a real risk if we have high inflation for years and high gov’t debts and show a real lack of accountability with regards to controlling those things
Is this likely in the short run probably not, in the long run it’s hard to say. Gov’t spending is out of control and there doesn’t seem to be any accountability with regards to QE so will people always want US debt at these low rates, hard to say.
Doubting Thomas: how about a shut-down of the government, as the GOP is now threatening? That’s a magenta swan, in case you’re wondering.
These shut down things are Kabuki theater. They will not default.
1) The Fed recalibrate. It will cut buy 1.25% until Dec to ease gov debt.
The calibration window will be open if the gov will be fully committed
to cutting debt.
2) The economy is solid. Unemployment will rise bc immigrants in the
black market make it harder and LONGER to find a job.
3) When our new national factories will be ready, protected by tariffs, there will be a shift from the service sector to the industrial sector.
4) Gen alpha is short by 30/40 millions. Demand for highly skilled workers will rise. Highly skilled workers from all over the world will
train workers in the US.
5) A good economy lift all workers. Higher wages ==> higher tax collection. The budget deficit will flip to green. The gov will be able to cut debt in nominal and real terms. The Dow will rock !
Anyone who thinks this rate cut is a good thing really does not understand the first thing about economics.
Rate cuts are done because the economy is crashing.
LOL. This economy is only “crashing” in your own fantasies.
So then why a jumbo rate cut, Wolf? You can’t have your cake and eat it, too. This jumbo rate cut reeks to high heaven, and you know it.
You spent too much time on ZH?
“You spent too much time on ZH?”
I don’t read that garbage site at all. Yours is the only one I frequent. It’s the only decent one I’ve found, tbh. I’m just fearful the FED has gotten to you.
DC, that’s a interesting comment: “(Wolf) I’m just fearful the FED has gotten to you.” Do you imagine that it’s a hostile takeover, he’s been drinking kool aide, or there’s a gun at his head? Maybe an invitation to the next FOMC meeting?
This is only anecdotal, but here’tis: I’ve been an ATT customer from the get go, been going to ATT stores for two decades for new phones, updates etc. Stores were always crowded, long queue for getting assistance. Yesterday I went to the store and no customers, 5 employees on the sales floor and I am the only customer in the store, for the entire 20 mins of my visit. Just now, came out of Lidl to buy some chips for the senior lunch today. Chip price down 25% from 1.99 to 1.49 per bag. At the checkout, clerk said the store has been empty all morning.
3$Man,
When I went to Costco on Saturday — it’s always on Saturday, same day of the week, about the same time — it was total utter mayhem. I have never seen anything like this. There was a line to get a cart, there was a line to get in, the aisles were packed, carts full, it was complete utter mayhem. Consumers have gone nuts I think.
I’ve been an AT&T wireless customer for two decades. I have never entered an AT&T store. I do everything online. I have no idea why anyone goes to a store. You can buy your iPhone from Apple online or from AT&T online, and set it up with AT&T online. Why would anyone still go to an AT&T store? These kinds of silly stories from ecommerce-deniers that extrapolate them to the overall economy are just funny to me.
I just Nope out when I see lines like that at any store.
It’s just not efficient use of one’s time to be herded into a store and herded back out.
My grandpa was the type of shopper that had to go down every aisle. Every aisle man! Drove me insane. But I guess he didn’t want to miss a deal or something he needed.
Costco just needs to implement “scan it yourself and leave” technology. They would make more $
Wolf or anyone who has insight… It’s interesting to look at the relationship between the start of rate cut cycles, the SPX, and overlays with recessionary periods. Sometimes the onset of a rate cut cycle coincides with an aggressive drop to stock prices, and other times the markets shrug it off or continue on upwards. Figure this is an apt time to ask if anyone has insight on what variables may effect stock prices at this point of the cycle. Is it as simple as, recession = stocks plummet, otherwise, to the moon? Any patterns or other variables we should be looking out for to help understand which it may be this time around? As always, thank you for the timely, consistent, and reliable data and analysis.
It’s a completely different market now, so none of the old trends from before 2008 apply anymore.
Professional money managers younger than ~40 will only have worked under the current regime.
The market doesn’t care about recessions. As seen with 2008 & 2020, there’s no recession that can’t be cured with money printing. And given how dovish the Federal Reserve already is with unemployment at 4.2%, it’s a given they’ll turn the money printer on full blast in a real recession.
Markets only move on the direction of interest rates (and government spending, when Congress is not gridlocked.) Tightening = markets down. Easing = markets up. Stimulus = markets up. That’s pretty much it.
Inverted yield curves aren’t a recession signal any more. When the Federal Reserve wants to ease (basically any time except high inflation, they have an easing bias), yield curves will invert.
My take is that markets follow fundamentals. Hyperbolic valuations aren’t reflecting fundamental values, and markets can be hyperbolic for long periods of time. Charting/technical investing are ways to time momentum, not value, and, if you can make bets on a rich deck, you might do very well investing in short-term market movements and probabilities.
People have anthropomorphized the stock market. Ben Graham used “Mr. Market” as a foil to get his ideas across. The stock market is just an auction, there’s no Great Oz inside it.
“ My take is that markets follow fundamentals. Hyperbolic valuations aren’t reflecting fundamental values, and markets can be hyperbolic for long periods of time.”
MY take is that the Ozz-man has us all licked!
He has made it so that the most solid premise one can posit is a non-sequitur. The fact is that the rules are constantly changing (now more rapidly than ever).
It’s still TINA in that anyone who is 1-4 decades away from retirement can’t reasonably park their bi-weekly contributions in a conservative bond fund (since the menus are ALL funds with the requisite management fees).
I can be self guided, at the cost of losing my employer’s tax break (err “matching funds”).
The incentives are slanted so hard to the house (of cards) it’s hard to believe. They are doing their best with the slow boil, but the working, thinking person is aware they’re stuck in the pot.
Again, my personal situation is OK, hindered mostly by my own folly. I just know the options when the government is faced with a hard choice: debase, deface then defeat (hot wars aren’t currently en vogue, so we only proxy, for now. Tomorrow is another day)
I know the market was expecting it, but I’m still surprised that they opted for a 50 point cut. Seems like there are plenty of indicators that inflation isn’t completely under control and a fast drop in rates could undermine that. I hope I’m wrong!
Powell said “This is the right decision for the people we serve”
The question is who he serves.
Housing at/near ATHs
Stocks at/near ATHs
Inflation above target
Economy everything is awesome of course don’t tell me unemployment at 4.2% is scary then on the other hand tell me everything is rosy.
WTF? 50?
1. they tightened with 75 basis point rate hikes, three of them back to back, in 2022. Did you already forget? And then they followed with a bunch of 50 basis point hikes, just routine. So a 50 basis point cut looks pretty basic.
2. Job creation has slowed dramatically. The number of people that have arrived in the US to work now exceeds by a big margin the number of nonfarm jobs being created. One more bad month with bad revisions like August, and nonfarm job creation will be negative. That is a real issue.
3. the Fed’s policy rates haven’t changed in 13 months, even as inflation has come way down. Before this cut, the Fed’s policy rates (5.25% to 5.5%) were about double core PCE inflation (2.6%) — and that’s very unusual and it has a restrictive effect on the economy.
Restrictive my rear end. This economy is still grossly overstimulated and inflation is still roaring. “The most reckless FED ever” continues.
Yep. There is no soft landing here, inflation is clearly understated. If this rate cut is in response to adverse jobs data and looming recession, then inflation could continue with no landing at all.
Too bad the Fed through the years has abused the only anti-inflation weapon it has. Wouldn’t it be great if there were more ways to direct monetary policy other than protecting asset bubbles?
What about in 2000 when inflation was at 2% and the FFR was at 6.5%? That level of “tightness” only led to a mild recession in 2001.
@Bongo,
I don’t think inflation has anything to do with that 50bps rate cut decision. I think it has more to do with a surfeit of external factors that made the Fed ignore the fundamental issue at hand, namely inflation. I’ve been in that situation before, and you finally just say to yourself, “F it. I’m just going to punt, even if it’s the wrong decision.” It certainly lifts the burden, but it is ultimately a bad decision that will personally haunt him for decades. I felt the same way when I retired early, despite loving and being really good at my job.
JeffD,
They can always hike again. That’s what they used to do. Rate cuts are not permanent.
@Wolf,
I agree they *can*, however, considering there will be a rapid series of rate cuts without letting the dust settle between each one, they lose credibility if they then come back later with, “Whoops! Aw-shucks, I guess we made a mistake!!!” Burns found that out the hard way, and Volcker had to clean up the mess. The Fed can’t afford that right now, unless they have an ulterior motive of (further?) weakening the dollar more than the rate cuts, themselves, might deliver.
JeffD, hmmm… you may have that right. Maybe the Fed is trying to weaken the dollar, especially with rising tariffs and less global trade. A strong dollar would generate even more inflation and hurt exports, robbing Peter to pay Paul.
“A strong dollar would generate even more inflation”
FAIL. By definition, a strong dollar has more purchasing power. This is the very opposite of inflation. My god, if we are just going to make shit up (like 2+2=5), it will be impossible to have a honest discussion.
“Burns found that out the hard way, and Volcker had to clean up the mess.”
Yes, unfortunately this is NOT the 70’s and 80’s. The DEBT is the problem, and that is all on CONgress.
WB
Volcker had a lot of enemies because the high rates caused severe damage to the economy. I got out of grad school in 1981, and there were no jobs for me. Worked in a Taco Bueno for a while as “assistant manager” to make ends meet. Lots of companies failed due to the high rates. He triggered the worst unemployment crisis since the Great Depression. So, OK, it was necessary to break the neck of inflation, and that had lots of long-term benefits, but it also broke a lot of other necks along the way. High rates are not a gift from God. Nor are artificially low rates.
I guess the other option to consider is that the FED is spooked by something but for obvious reasons they are not going to go out and discuss it.
Are you sure that is historically so unusual?
SO – Wolf – is the drop in the inflation rate from 9% all due to the FED or is some of it reaction to consumer not spending. I know your posts all says we have drunken sailors spending like crazy. Strange to think both can be in the same boat……..
By hiking rates, the Fed is trying to slow demand, including consumer spending, demand by businesses, demand for labor, etc. Some things have slowed, others have not, CRE has plunged into a depression, housing market demand has collapsed, demand for labor is down sharply (but no layoffs yet), consumer spending sill doing good…
Big probs at US based auto makers with 2400 layoffs at Stellantis and 1000 salaried chopped at GM. Huge change in Ford’s EV plans.
It’s the price, stupid.
Other automakers don’t have these problems. Stellantis, a European company, has no idea how to sell Jeeps and pickups in the US. They’re way overpriced. Their dealers are in all-out revolt against the company. This is a company-specific problem.
Ford goofed when it figured that EVs would be a premium product that it could sell for $80k-plus. But prices have been cut all around, because for other automakers, EVs are cheaper to build than ICE vehicles. And turns out, Ford’s costs are way too high. It engineered high-cost vehicles to be built with high-cost processes. So now it has to go back to the drawing board in terms of cost-conscious designs and production methods. This company is one of the worst-managed companies out there, behind Stellantis.
Overall new vehicle sales in August were up 7.6% from a year ago, in terms of number of vehicles sold to end-users:
https://wolfstreet.com/2024/09/16/used-vehicle-unit-sales-jump-much-lower-prices-bring-out-the-buyers/
I’ve been a Big Three guy since the 1970s. Did a little engineering work for a door supplier once.
Anyway, I thought long ago that Ford should buy Jeep and sell it here. Of course now with the Bronco brand who knows, they may not have use for it.
During the next big global recession I can see Stellantis being sold off in pieces. I wouldn’t be surprised to see a Korean company pick up Ram. I think Hyundai and Kia cross own each other maybe?
How about Ford’s witless engineering? The recycled beer can aluminum bodies loathed by body shops. Or the flimsy ten speed auto transmission gizmo which commonly locks in a lower gear. Or the genius level idea of turning the engine off at stoplights, saving a tumbler of fuel while sacrificing starters and solenoids.
The giveaway is the 36k mile warranty when the Korean manufacturers off 100k / 10 year warranties.
We have one of those lemons you describe: CVT, engine turns off at stop lights and when you cruise along at low speeds (it’s a hybrid and runs on electric at low speeds). It’s a big vehicle (Fusion), and it gets 40-50 miles per gallon. It’s our second one, and we love it, and never had a problem with either one of them, except the first one got totaled in a rear-end collision.
The engineers did pretty good. But the executives are the idiots because they killed the Fusion and the Fusion hybrid in 2020 instead of coming out with an updated model. They just handed that businesses to foreign brands. That’s the problem at Ford: the idiots that run the place.
Ford learned early how to build crap. They built a Ford Mustang that I owned in 1980 when I was completely broke trying to raise a family. The car nearly put me into bankruptcy. It was piece of S$it. I never bought an American car after that. The mechanic that tried to work on it said it was so under powered and mid-engineered that it could not even be properly tuned up, EVER, and I had trouble driving up small hill without the engine knocking.
Well VW is also having issues, including possible first layoffs and/or plant closure since end of WWII.
If I had to guess a common factor: it’s not easy for a legacy ICE maker to switch to EV. Eg.: What do you do with the engine casting plant and the guys doing it?
Personal trivia: if everyone was like me, new car sales would fall close to zero for years. I could
buy more than one for cash, but just don’t operate like that. So it’s good that people vary, because someone had to buy my car new.
Nice reaction to 3 month at
4.765% and Yen to 140 — smooth sailing ahead — with baby smooth soft landing — it’s time to get off the plane and start guzzling champagne and party like it’s 1999!
10-year yield jumped, LOL
And the average 30-year fixed mortgage rate also ticked up today, according to Mortgage News Daily’s metric.
I would have bet the bank they would lower it a quarter point.
Hmmm….what will the market do?
Will the market think this is great and have a bounce?
or
Will the market say a 1/2 percentage point means the economy is worse than it looks triggering a sell off.
I like short term T-bills even if it means a little less income until this all shakes out.
Perhaps think of yesterday’s rate cut as 0.25% with a back-dated 0.25% cut from the previous FOMC, taking into account revised data.
With no FOMC in October and the next one landing around the election in November, its forward guidance might easily get lost.
This is an assessment, rather than an endorsement.
Well, people will poor money into treasuries and I will be one of them. Given my interest income in my state is taxed at 9.3% I prefer to stick with Feds. Going to keep my equity positions as well since nothing suggests things won’t just keep going up. Not really wanting to take on capitals gains in the state I am in. Just got back from a vacation in Tennessee so a solid option there but other states as well. Escaping the California Franchise Board is tricky however.
Over 100 comments in 2 hours. Legacy secured, JP.
Gosh, thank you Fed. We savers and retirees have been making way too much money on our nest eggs anyways. I eagerly look forward to getting schlonged and sacrificed in the coming months as you yet again appease the cheap money addicts and junkies (huzzah!). BTW, in the last two weeks I’ve received rather nasty increases in both my rent and auto insurance. Maybe the cost of some things are coming down, but for me anyway, it sure doesn’t feel like it. Can’t wait to see these current and future rate drops reignite inflation. So much for some of us being prudent and responsible. Time to cut and tighten up an already lean budget. Thanks again Powell.
I know it’s crazy isn’t it, you’re not alone, it is hard to comprehend what a roller coaster ride that fed is creating, since 2008 they’ve been on a QE and low interest rate binge which has caused an incredible amount of inflation, decimated the poor middle class. It’s really a sad State of affairs, and this always always always always happens when you have too much power in too few hands.
Investors will park their money in the private sectors instead of supporting gov debt and gov pet projects.
A half point…..of course…..considering the awful economy……needs immediate help.
Now I guess we will see if the historical pattern holds up of the Fed starting cutting before the recession, or, miracle of miracles, this time is different and we have a “soft landing”.
Bowman for Fed Chair.
Amen
+1
Only one mention to the balance sheet, that continuing to roll off and easing rates can continue together. I still am looking for a answer to the acceptable amount that should be on the balance sheet. It would be nice to get to $4T again, just to give breathing space for the next QE which of course will come.
No it won’t.
I know it’s legal out there… you been tokin’, SoCal?
One word….Stagflation.
One half, the stag, is still missing. 2-3% GDP growth is not stagnation.
Well it could be down the line.
Government borrows all the saving….leaving very little for others resulting in slower growth going forward.
And there are natural pressures on inflation anyway.
So stagflation cannot be ruled out down the line. Of course right now there is no sign of it
But this is exactly how China was in 2008-2015. They stimulated, money was made easy and there was a big boom. But now they are in trouble. The longer the distortions are the likelier it leads to bad outcomes (deflation, stagflation)
So this should speed up MBS runoff?
Seems it would.
Refi’s jumped this week to the highest since April 2022. They have now tripled from the low late last year. Refis are a big factor in the MBS runoff. This should cause the MBS runoff to pick up speed.
Higher home sales — unfreezing the market — would also increase the MBS runoff. But that may not happen for a while.
Silver lining? The Fed NEVER should have touched MBS in the first place. The companies/people that created and profited from that toxic shit should have choked on it and died…
…That is real capitalism and rules-based free markets.
HELOCS are immediately affected by the rate cut, so perhaps it would actually make them more attractive relative to cash out Refis? Just a thought.
The Fed cuts rates in the face of record stock prices, home prices, food prices, insurance rates, and re-accelerating inflation. Elizabeth Warren clearly has Powell by the balls.
Inflation is on a long term downward trend. Employment is in a good place but showing signs of weakness. Given the dual mandate, it makes sense to cut.
Also, mentioning stock prices and home prices with regard to the FED setting rates shows that you don’t understand what the FED does.
“Also, mentioning stock prices and home prices with regard to the FED setting rates shows that you don’t understand what the FED does.”
Just WOW. You really don’t understand jack shit, do you?
Etymology of jack shit: The term is a corruption of a phrase used in the British Navy. “He doesn’t know jacks from sheets.” Where “jacks” were flags or small sails and “sheets” were larger sails. It’s not that big a step from describing a novice sailor as “not knowing jacks from sheets” to “not knowing jack shit.”
Nobody behavioral projects like a nutter.
“Inflation is on a long term downward trend.”
Alternate take: inflation is about to enter Act 2, and the Fed will soon be forced to raise rates again.
If inflation finally goes back to 2% in 2030 is that a victory? The feds timeline just keeps getting pushed out.
They should have raised faster in late 2021 and early 2022 caused a mild recession and we’d be through all of it by now. They were too worried about spooking wall street though
In your alternative take, the FED can reraise rates if inflation does reignite. What is the problem?
“Inflation is on a long term downward trend. ”
LOL!!!! Not in services, food, or energy. You must be a central banker, and complete unfamiliar with any actual work that creates something of real value. Input costs for the people who actually produce real things have not gone down. The RATE of inflation has come down, but is still NOT at 2%. However, with many things already UNAFFORDABLE, a RATE OF INCREASE of 2% does not make these things affordable. Stop being such a disingenuous ass.
My statement was factual. I am sorry this fact bothers you. Inflation was at 8%+ it is now at 2.6%. 8% > 2.6%
That is a simple math based fact no matter how much you complain.
I didn’t say thing got cheaper. I said inflation has been coming down. That is 100% true and no disingenuousness.
You are the one being a disingenuous ass (your words). Wage growth has been outrunning overall inflation for a while now. That means things are getting more affordable.
Again literal basic math.
As for your silly comment about people who produce things, I am willing to bet I have seen the inside operations of far more manufacturing plants than you have. I spent many years doing consulting with small manufacturers.
Perhaps your problems aren’t with me, but your inability to see things as they actually are. Facts seem to bother you.
Wonder what will happen if we get a bad inflation print in October right before the election while the Feds cutting? Everyone hates inflation….
100% 👍🏻
I keep saying economy is great! Buy NVDA ride train! AI + nuclear = mega growth!
Thank you J Powel I love America I love this economy!! I love NVDA GPUs :]
You better keep pumping NVDA, it needs it, it fell again today.
I guess it’s great if you’re lucky enough to own a house, everyone else is getting decimate.
Geez, I might need to go long TLT…
If QT continues, the yield curve is highly likely to un-invert. As the Fed mops up excess liquidity through QT, eventually purchasers of Treasury securities will not have the dollars to continue funding the debt. Depending on the mix of maturities being offered, some part of the yield curve will see a sharp rise.
The key word being “if”.
Given the level of caution displayed by Powell, it seems they’ll be exiting QT long before it causes long rates to rise.
He discussed that yesterday. The end of QT is not even close, he said. They’re trying to bring reserves down with QT, but so far, all of QT has come out of ON RRPs and reserves haven’t gone down, he said. They’re “still ample,” he said. So it’ll take more QT to drain ON RRPs and then more QT to reduce the reserves by enough. All you have to do is listen.
I like that plan, but we know what Mike Tyson says about those. I suspect the market will put early pressure on Powell to end QT. Then he’ll be tested.
FYI, I don’t listen closely to Fed conferences anymore because I want to stay focused on what they actually can do, not what they think. I’m not about to trust the judgement or projections of an organization that couldn’t foresee the consequences of ZIRP and QE. I’ll re-evaluate after 10 years of consistent sensible policy. Maybe around year 2032, if they can keep it up.
Wolf Richter…. Depth Charge
Dr. Jekyll …. Mr. Hyde
Well I’ll be damned
Ha ha ha wouldn’t that be fantastic!
Has anyone ever seen them in the same place at the same time?
Don’t want to get political, but which party would benefit from the timing of this rate cut?
Who exactly benefits from rate cuts. Home loan rates have already been priced in, no? Credit cards maybe. What else?
Uncle SAM. Duh.
Anything can be spun by either side and their supporters will eat the narrative slop served. Obviously Democrats can say their plans are working and the GOP says look at your life and so on. I don’t think any part of this move was political.
It actually makes sense and what happens with inflated asset prices is anyone’s guess. In the end the election for the White House will mostly be about Pennsylvania so will be interesting to watch. At the end of it all it won’t matter who wins or loses because neither side really serves society and even if they did it will be gridlock. Basically will be increased military spending, kicking the can down the road, and compromises that mean little or nothing to simply get short term funding bills passed to keep the government running. The greatest democracy in the world firing on all cylinders.
Command and control eCONomy. Sad, anyone talking about “prices” in this market is an idiot. The central banks around the world have destroyed all the mechanisms for true price discovery. All built on top of a mountain of moral hazard and DEBT, which has to be resolved, eventually.
Interesting times gentlemen, hedge accordingly.
“Control economy”?!?!?!?
It is almost like you are making up the definition of words. If you argue the U.S. is a “Command and control eCONomy” you are either dumb or being a disingenuous ass (your words).
Where are the memos telling each factory how many shoes to produce?
The commodity complex and equities are running with the re inflation story this morning.
No chance that we go to 2 % very soon.
My view is, the Fed decided to push the “panic button” which brings them in the worst possible position. Now the market or as Wolf metioned the drunken sailors will force more and more 50bps rate cuts. And we all know, in the end the Fed will do what the market wants.
It is the same situation as in the repo crisis 2019: Fed is cutting interest rates in big steps, but they dont know why.
The Fed hiked by 75 basis points three times in a row in 2022 and by 50 basis points a bunch of times, and that’s just what they do. So if they cut by 50 basis points, it’s suddenly a panic? 🤣
I mean 25 bps were also enough, and 50 bps was not necessarily. But the Fed does always exactly that what the market and investors wants. 50 bps rate cut pathway is the new standard, and everyone with a bit mind knows that.
“But the Fed does always exactly that what the market and investors wants.”
Manipulative stupid bullshit. The market HATED the rate hikes all the way to 5.5% and it HATED that lack of rate cuts for 13 months. And it still HATES QT which continues:
https://wolfstreet.com/2024/09/05/fed-balance-sheet-qt-66-billion-in-august-1-85-trillion-from-peak-to-7-11-trillion-back-to-june-2020-another-qt-milestone/
That is simply not true. It is a statement based on irrationality and not the facts. In the very recent past when the FED was raising rates the market dropped 20-25% and everyone was screaming for a cut and the FED did nothing.
The FED focuses on inflation and employment. Not markets. Asset markets do what they do.
Stocks already ripping to all time highs at market open.
Great job Powell! Mission Accomplished!
I’m glad I can one day tell my grandkids about the middle class and how it used to be possible to own homes and live a normal life.
But, the Nasdaq is up 35% for 2024 so I’m sure everything is just great. My coworkers can barely put food on the table but that doesn’t really matter when the market is ripping.
And a record high close for the Dow and S&P today. Mission Accomplished, indeed.
Howdy Youngins. Only way you get to double digit interest rates is to lower raise, lower raise. Have to wait a decade or two.
HUH❓❓❓
What Wolf has not discussed is the complete FRANKENSTEIN MONSTER the fed has created with the US economy and housing market. ZIRP has destroyed this country creating monsters (housing market, stock market) they could not control. Prices went into the stratosphere and now many people don’t want to imagine their homes and retirement accounts are worth a small fraction of the silly numbers the Frankenstein Bubble magically created. You mean my 401K is worth 20% of its fantasy valuation? The prices got so high, they had to put the brakes on by raising rates, but then the crash started from normalizing rates. Now, they are really screwed. Between a rock and a hard place. Raising rates now will not prevent the Frankenstein Bubble (housing prices) from crashing.
I wonder if your new faith in the current Federal Reserve Wolf is based on an initial belief that we would go into a recession with the rate hikes and now being impressed that the Fed has managed to avoid that and possibly pulled off a soft landing/no landing? Perhaps your incorrect assessment of the economy in 2022 is leading you in the opposite incorrect assessment now? You do better than most in trying to stick to the numbers but you are still only human and a human that lives a fairly comfortable life economically at that. I say this in all respect but I think you are too kind to our technocrat overlords at the Fed.
In my scenario there is the risk that inflation has not been vanquished, and that we will see more action from that side. So to me, the soft landing in terms of inflation might still lack the landing of inflation. A substantial reversal of the direction of inflation will stop the rate cuts, just like they did in early 2024. So that’s what might happen in the future.
However, what has already happened is that inflation HAS come down a LOT. The Fed’s policy rates are very high, compared to inflation. And in recent months, job creation has fizzled — so for sure, the labor market has “landed” from the era of labor shortages and workers telling big companies what to do. So, as I said, the Fed has room to cut, and the labor market could use the juice from a cut.
If inflation U-turns, the Fed can always hike again. It used to do that. Rate cuts are not permanent. So rate cuts and rate hikes might just reflect a current economy situation, rather than long-term status.
The simple fact is that all interest rates should be set by the markets. Short term rates should not be set by a bunch of politburo wannabes led by a politically appointed braindead Deadhead. Yes, Jerry Powell said he is one of Jerry’s Kids.
We should also go back to riding horses instead of Teslas and also give up our smartphones and use an abacus and the Pony Express.
Wolf,
In case you are curious, the banner ad fed to me at the top of this article is for the “Chevrolet 2024 Blazer EV RS.”
:-)
🤣❤️
Maybe triggered by today’s article about cars — “contextual ads.”
Wolf, thank you for breaking down the FMOC communication into “Old” and “New”
very insightful
look forward to more of this going forward