“Dot plot”: 8 of 19 participants see either no cut or just 1 cut in 2025.
By Wolf Richter for WOLF STREET.
The FOMC voted today to keep the Fed’s five policy rates unchanged, for the second meeting in a row, after cutting by 100 basis points in 2024. All participants agreed with the rate decision. But Christopher Waller dissented because he preferred to continue the current pace of QT.
- Target range for the federal funds rate at 4.25-4.50%.
- Interest it pays the banks on reserves at 4.40%.
- Interest it pays on overnight Reverse Repos (ON RRPs) at 4.25%
- Interest it charges on overnight Repos at 4.50%.
- Interest it charges banks to borrow at the “Discount Window” at 4.50%.
And participants see only two cuts in 2025 as per the median projection in the “dot plot,” with a hawkish shift: four participants see no cut, and another four participants see only one cut.
The FOMC will slow QT. After outlining it in a series of communications, the FOMC provided details today:
- It will slow the Treasury securities run-off to $5 billion a month starting April 1, from currently $25 billion a month.
- It will let MBS continue to run off. The MBS runoff, which is not capped, has been around $15 billion a month.
The Fed has outlined the reasons for slowing QT in prior communications: It now sees a risk that the massive liquidity flows around debt-ceiling dynamics, which affect the liabilities on its balance sheet, will mess up the indicators it uses to determine if QT has sufficiently reduced the reserve balances on its balance sheet to be near “ample.” The Fed has already shed $2.2 trillion in assets since it started QT in July 2022.
[Update from Powell at the press conference: Powell said that after discussing these issues, participants “liked” the idea of going “slower for longer” with QT, to avoid any risks associated with withdrawing this much liquidity, and this “slower for longer” was the reason they effectively cut QT in half].
The “dot plot.”
Today’s meeting was one of the four per year when the FOMC releases its “Summary of Economic Projections” (SEP), which includes the “dot plot.” The prior SEP came out at the December meeting.
For the SEP, each of the 19 participants jots down where they see the Fed’s policy rates, unemployment rates, GDP growth, and PCE inflation by the end of the current year and by the end of each of the next several years. The median value of these projections becomes the headline “median projection” for that metric. These projections are neither a decision nor a commitment. Members change their projections as the economic situation changes.
Interest rates: only 2 cuts in 2025. The midpoint of the target range for the federal funds rate is currently 4.375%.
Today’s median projection for the end of 2025 remained at 3.875%, same as in December, so only 2 cuts of 25 basis points each in 2025, reflecting the Fed’s continued “patience,” as the Fed governors are now calling this wait-and-see period.
Projections by the 19 FOMC members for the midpoints of the federal funds rate by the end of 2025 (bold = median):
4 see 4.375%: No cuts
4 see 4.125%: 1 cut of 25 basis points
9 see 3.875%: 2 cuts of 25 basis points
2 see 3.625%: 3 cuts of 25 basis points.
GDP growth: The median projection for real GDP growth for 2025 declined to 1.7%, from 2.1% at the December SEP. And 2026 growth was reduced to 1.8% (2% is the 15-year average real GDP growth of the US).
Unemployment rate: The median projection for the unemployment rate at the end of 2025 rose to 4.4% (from 4.3% at the December SEP).
Inflation rate, median projections continue to rise:
- “Core PCE” inflation by the end of 2025 jumped to 2.8% (from 2.5% at the December SEP). Actual core PCE price index for January was 2.6%.
- Headline PCE inflation by the end of 2025 rose to 2.7%, from 2.5% in the December SEP, and higher than it is now (2.5% in January).
- Still no 2.0% in sight until 2027.
The “longer-run” federal funds rate: The median projection for the “longer-run” federal funds rate beyond 2027 remained at 3.0%, same as in December, and up from 2.9% in September, 2.8% in June, and 2.6% in March last year.
At the same time, it sees PCE inflation at 2.0% beyond 2027. In other words, over the longer term, it sees the midpoint of the federal funds rates to be 1 percentage point higher than PCE inflation.
What changed in the FOMC’s statement:
New: “Uncertainty around the economic outlook has increased. The Committee is attentive to the risks to both sides of its dual mandate.”
Old: “The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
Added language about QT: “Beginning in April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion.”
The whole statement:
Recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty around the economic outlook has increased. The Committee is attentive to the risks to both sides of its dual mandate.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. In considering the extent and timing of 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. Beginning in April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion. 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; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Adriana D. Kugler; Alberto G. Musalem; and Jeffrey R. Schmid. Voting against this action was Christopher J. Waller, who supported no change for the federal funds target range but preferred to continue the current pace of decline in securities holdings.
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– No surprise here. Mr. Market told me in advance that the FED would leave rate unchanged. But Mr. Market could be a rate cut in Arpil or May of this year.
We’ve been saying since mid-December that there wouldn’t be a cut at this meeting because that’s what the Fed has been saying since mid-December. You just need to listen to the Fed.
Looks like a soft landing to me. All those screaming recession all the time won’t be happy.
There was no landing.
The entire analogy is stupid — a plane landing comes to a full stop; the economy continues, regardless of either growing or shrinking (recession). It’s dumb, but I guess it emerges from sloppy analogizing as the opposite of “crash”
The new air traffic controller and his copilot are looking like they may turn that soft landing into a Delta style Toronto landing.
On the street a lot of folks are scared, uncertain about the future and alreading pulling back on expenditures. Enough to cause a recession? Who knows. Time will tell.
Inflation increasing and discussing rate cuts are polar opposites. Relatively speaking this may be “hawkish” for the Federal Reserve, but in working man’s consumer reality we are talking about various degrees of “dovish;” and assigning the word “hawkish” for the least limp side of dovish spectrum.
The era of Hawkish central bankers is long gone. Elevated level of public and private debt around the world will prevent central bankers from being hawkish. They will always err on the side of inflation and remain dovish. The only important question is how much inflation will be tolerable.
The track record of central bankers in pricking debt bubbles is so bad that no one wants to even attempt it.
Spoken like someone who has never experienced, nor knows anything about the history of, deflations. Policymakers are rightly terrified of such an outcome and will always (correctly) choose an inflationary bias.
The FED absolutely loves what it has created here – persistent inflation above its illegal “target.” They pay lip service as if they care, but their goal is to maximize inflation to pay for their own greed and sins, but stop just short of the point of a revolution.
They didn’t create this is just selective enforcement
There goal is to engineer and “acceptable” inflation to reduce the real burden of the massive debt economy in the US. That’s the game.
Can’t pay it off, can’t default, must inflate. But you are correct in that they lie about this goal.
Interesting notion of “median”, with 8 below and only 2 above. Someone rounded to make the presentation slide.
If you use floating point numbers, my calculator comes out with 4.0, or on pretty much dead on the line between the 9 majority and the 8 who are more concerned about inflation.
Median is the value in the middle, it’s not “average.” You might want to look up the definitions of “median” and “average.” These are really important concepts, and you should have a firm grip on them.
“Mean, median and mode — the three measures of central tendency”
Some of us remember our grade school math, even if it is from50 years ago … :-D
The Fed for sure is not seeing a recession.
And they may be right, or they may be wrong. Place your bets.
Heads I win. Tails you lose.
When they ‘see’ a recession, it’s one that will affect the big guys (millionaires, billionaires).
A recession that will wipe out millions of middle class – to them, that’s no recession – it’s just an unfortunate inconvenience. As long as that’s the case they don’t/won’t ‘see’ a recession.
How often have then called a recession correctly?
Never as far as I can tell
The feds job isn’t to “call recessions”. It’s to adjust interest rates so we dont have one, and if we’re in one, to adjust rates to help the economy pull out of it.
Technically, the Fed’s job per the Federal Reserve Act is to conduct monetary policy “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
A lot of people, including members of the Fed, read into that other stuff based on their economic theory. But that is the mandate.
Thanks Nate. Avoiding recessions by creating bubbles that pop spectacularly is absolutely NOT part of the mandate.
He demurred on “outliers” such as consumer confidence, inflation expectations, Atl Fed GDP, and he danced around the notion of lower GDP and higher inflation being the moral equivalent of their opposite.
Consumer confidence is usually understated in a market economy; in a world dominated by aisles of mass produced products, the consumer lives to shop and never has enough to satisfy his or her wants. Unlike communism, whose shortages produced such phenomena as standing in line in order to snag a momentary appearance of a good, capitalism churns out the stuff with a glee that is only limited by credit or spending power…
Wolf – here I learned that imports subtract from GDP, which is why GDP came in -ve recently. Two quarters of negative GDP because of, say, surging imports subtracting from the GDP figure — would that be considered a technical “recession” ?
The surge in imports and the inventory adjustment combined could cause negative GDP readings back-to-back. We went through that in Q1 and Q2 2022, when the supply chain chaos was resolved and all this stuff started showing up here.
In the US, a recession has always been defined as a broad-based decline in economic activity and a decline in the labor market. When consumer spending grows and the labor market is decent, there is no recession. Strong imports are by definition NOT a sign of slowing economic activity. During the Great Recession, imports plunged because of lack of demand. That was a recession!
everyone has their own
Its a very subjective measure though isn’t it. The IMF’s definition of two consecutive quarters of negative growth isn’t perfect but its pretty good as an objective measure. Q1 and Q2 of 2022 didn’t actually meet that definition but Q1 2020 and Q2 2020 did which is not surprising.
Clykke
It’s not subjective at all. It’s based on labor market data and economic growth data. It’s total nonsense to call an economy in a recession when consumer spending (70% of GDP) is strong, when labor market data is strong, when business spending and investment is strong, but imports are huge (a sign of strength in demand) and when there is a big inventory adjustment. It’s just stupid to call this a recession.
Q1 and Q2 2002 GDP growth figures were both negative when the data was first released. Later (2024) they were both revised higher, and Q2 2022 then become slightly positive. But even at the time, it was perfectly clear that this was not a recessionary economy. You simply cannot have a recession without the labor market declining. With a strong labor market, it’s not a recession.
GDP as reported in July 2022:
Here is my discussion about Q1 2022 GDP:
https://wolfstreet.com/2022/04/28/gdp-sunk-by-trade-deficit-result-of-globalization-drop-in-government-spending-consumers-held-up-despite-raging-inflation/
And Q2 2022 GDP:
https://wolfstreet.com/2022/07/28/gdp-sunk-by-plunge-in-private-investment-drop-in-government-spending-consumer-spending-rose-despite-raging-inflation/
As has been the case in the US for many decades, the NBER defines what an official recession is, and calls them out in the US, it’s not the White House! The definition of a recession has not changed in my lifetime:
https://www.nber.org/research/business-cycle-dating
Which recession was the Fed able to clearly see?
All those it managed to prevent?
LMFAO!!!!
The Fed has become the greatest enabler of bad behavior that the world has ever known.
The Fed is now preparing to cut later this year in the face of increasing inflationary pressures (that Wolf and others have clearly documented).
The Fed can prevent a technical recession i.e. broadbased degrowth.
But it does that by moving activity from one area to another. The idea that Fed can actually prevent a recession is just theory….other than the fact that is it a widely held belief, there is no good logical explanation on how Fed actually helps. We had recessions before the Fed and we have had recessions after the Fed.
The frequency of recessions has reduced but that has been compensated by severity or duration (anemic growth for longer). And with debt levels growing, those may also be out of the Fed’s hand now.
The Fed can control asset prices so that a certain section of society doesn’t feel like it is in a recession. That the Fed has accomplished quite well.
I’m of the opinion (not widely held, I know) that monetary policy is mostly a noisy distraction from the real action, which is fiscal policy. I further believe that your elected representatives very much like the current arrangement, since it lets them dodge accountability for the economic outcomes of their fiscal action/inaction.
It helps to look at Wynne Godley’s sectoral balances analysis.
Think about it, at least …
Neither did boonanks right before the gfc!
“The Fed for sure is not seeing a recession.”
We are already in a recession. The Atlanta Fed is forecasting a 2% GDP drop in the 1st quarter.
Try to figure out what the Atlanta Fed’s GDPNow actually is, rather than posting BS here. It explains it on its website, right at the front page.
Wolf read the tea leaves correctly about QT/UST slowing (25B/mo to 5B/mo starting in April).
https://wolfstreet.com/2025/03/08/why-the-fed-considers-pausing-or-slowing-qt-until-the-resolution-of-the-debt-ceiling-situation/
Glad to see that Fed kept QT/MBS at 35B/month. At least someone at the Fed realizes that the the great housing inflation in 2021-2022(+) has been incredibly destructive to the productive economy. How can you possibly have manufacturing when wages must double to afford a roof over your head?
The MBS number is pure fantasy
I don’t recall the Fed ever hitting the actual rolloff number since QT started.
The housing inflation remains a problem. Especially for those with the slowest access to capital. The inflation that is little commented on is the immense wealth created by our stock markets!
In the last month over $3 trillion evaporated from financial markets.
Collapsing the stock market valuation is QT on steroids IMO.
LOL! Please, the stock market has long since decoupled from the real economy. That’s what happens when you allow a handful of central bankers to manipulate price discovery mechanisms. Don’t believe me? Do your own homework of P/E ratios etc. and look how they have changed. The market is still pricing in something like 25x earnings for this year. LMFAO, yeah right. Still 50-70% overbought if you ask me. This doesn’t mean that there are not good companies to buy, because there are.
Powell: Every forecaster believes tariffs are inflationary.
What about ZIRP ? Was that inflationary ?
Wolf recently pointed out that inflation did not happen when President Trump imposed tariffs in 2018. Numbers do not lie.
Not right away…
What happened was that corporate profits fell, collected taxes on profits fell and the stock market dropped over 15%. However Covid hit, and that changed the dynamics of everything.
We are now entering a period of random tariff threats or implementation, significant economic uncertainty and wavering political alliances.
Plus an AI bubble of epic proportion.
What could go wrong?
There was also the addition of the 2017 repatriation tax rate of 15.5% on corporate cash held overseas.
Apple alone brought over $269 billion from overseas, paying only $38 billion in taxes.
Well, not every forecaster. But the consensus seems to believe that. At least this non-forecaster isn’t so sure as the historical case looks a bit weak on the correlation between tariffs and inflation. But the economy seems different from the past too, so who knows?
King JPow and his merry band of Bailout Boys have decreed, let the bailouts continue! And the market dideth rejoice in jubilation.
I don’t see any bailouts. Personally I see a sensible Fed…compared to what we have gotten used to since Greenspan.
My reading between the lines in the last two years is
1. Fed no longer believes QE does any good to the economy. It may actually be harmful
2. It is more sensitive to employment than inflation. So will tolerate inflation to achieve full employment (what the duck the define it as)
Your comment is likely about the market and its behavior. Well they are conditioned. It will take time. Perhaps the next crisis will test the assumptions of the market :)
Nice of them to come around and realize the errors in their ways after they made homes and food nearly inaccessible to the average person.
yeah what good is full employment if the jobs don’t pay for the necessities of life?
And dumbasses think it’s a soft landing without thinking their kids and young never able to afford a house smh
Fed done with QE? That could be wishful thinking.
If they continue the goal of avoiding recessions at all costs, they may need lots of future QE. Many are saying the stock and RE markets are the economy and there is no denying they are inextricably linked.
Isn’t QE is the Fed’s only effective tool to reverse panic and support asset prices in the face of turbulence? Do we think the Fed will just stand by in the face of a 50% stock market drop, which is certainly plausible?
Who knows what the Fed will eventually do. It is my view that they realize QE doesn’t work.
Whether Fed serves to avoid recession or cause it is a matter of debate. QE and recession has become mixed in the minds of people because of proximate occurrence. QE is a tool to avoid deflationary bust and financial market seizure. If we had a dot com style recession, I don’t see the Fed using QE as a tool. I don’t think they would be able to justify it either.
And yes if the market dropped 50% with financial markets working smoothly then there will be much lower Fed fund rate (and likely higher longer term rates) but unlikely any QE IMO
And I dont think QE actually helps at all, just makes the eventual downturn even worse. And to Aman, Deflation is not bad, especially after theyve debased the dollar at least 20%. Financial markets don’t need QE to survive, whoever needs money just needs to lower the price of their bubble assets or go bankrupt. People need to learn to be careful with borrowing.
Stocks were short term very oversold and the SPY dividend is Friday, so it was a good time for a bounce.
Since when is not cutting rates in the face of rampant inflation considered “hawkish”?
Definition from Investopedia:
“A hawk generally favors relatively higher interest rates if they are needed to keep inflation in check. In other words, hawks are less concerned with economic growth and more focused on the potential of recessionary pressure brought to bear by high inflation rates.
Hawk doesn’t mean rate hikes. It means a greater focus on inflation and a lessor focus on economic growth. Dove favors economic growth and brushes off inflation.
Stagflation sure still looks likely to me.
Stagflation’s a no-go per the Fed’s report.
Growth’s humming, jobs are solid, and inflation’s cooling, not spiking. The Fed’s chill with steady rates. Your stagflation bet seems like a miss. Maybe find a sector where all those factories are being built.
Are these the factories due to Trump’s tariffs? I have not seen any announcements.
Here’s a list of Wolf’s articles covering the factory boom.
“The Eyepopping Factory Construction Boom in the US”
Date: December 1, 2023
Summary: Highlights a dramatic increase in factory construction spending in 2023, up 71% from 2022, attributing it to a corporate rethink post-pandemic and declining construction cost inflation. Notes the boom’s “amazing” scale given stable costs.
“Factory Construction Spending Soars to New Record, +16% YoY, +242% since 2019: Result of Corporate & Strategic Rethink”
Date: December 1, 2024
Summary: Reports 2024 factory construction spending hitting $234 billion, a 21% rise from 2023, driven by Biden-era incentives and a shift from globalization. Discusses regional impacts, especially in red states.
“Apple Announces Server Manufacturing Plant in Houston, Adding Weight to Eyepopping US Factory Construction Boom”
Date: February 23, 2025
Summary: Details Apple’s AI-server plant announcement, part of a 2024 construction spend of $233 billion (up 20% from 2023), contrasting Biden’s subsidies with Trump’s tariff approach, emphasizing strategic shifts away from China.
“Eyepopping Factory Construction Boom in the US Reaches New Highs amid Big Corporate & Strategic Rethink”
Date: July 31, 2024
Summary: Notes a $235.5 billion 12-month total investment by mid-2024, up 19% year-over-year, driven by post-pandemic supply chain lessons and the CHIPS Act, with a focus on semiconductors and beyond.
“Eyepopping Factory Construction Boom in the US: Chip Makers on Forefront, but CHIPS Act Funds Not Even Released Yet”
Date: February 2, 2024
Summary: Covers a 2023 spike to $196 billion (up 71% from 2022), led by chipmakers like Intel and TSMC, despite CHIPS Act funds still pending, linking it to supply chain chaos and China dependency.
“Eyepopping Factory Construction Boom in the US: Semiconductors, Auto Industry, and Everyone Else”
Date: June 2, 2024
Summary: Expands on the boom’s breadth—semiconductors, EVs, and more—reaching $196 billion in 2023, with 2024 on track for a new record, driven by a rethink of globalization risks.
“U.S. Factory Construction in a Historic Spike, after Years of Going Nowhere (Amazing, but Can Something Like this Last?)”
Date: November 3, 2023
Summary: Reports a near-tripling of spending since 2021 to $140 billion in the first nine months of 2023, questioning sustainability amid federal subsidies for chips and EVs.
“Construction Spending for Factories Soars, after Decades in the Doldrums”
Date: September 2, 2023
Summary: Describes a $200 billion annualized spend rate over five months in 2023, up 150% from pre-pandemic levels, tied to government stimulus and a manufacturing resurgence.
“Construction Spending Squeaks to Record amid Eyepopping Boom in Spending on Factories while Residential Construction Tries to Dig Out of Last Year’s Slump”
Date: September 2, 2024
Summary: Notes factory spending as 19.6% of nonresidential construction, a record, with a 230% rise since 2021, fueled by chips, EVs, and high-value manufacturing, alongside residential recovery.
These articles collectively trace the factory construction boom’s trajectory from 2021 through early 2025, emphasizing its scale, policy drivers (e.g., CHIPS Act, Inflation Reduction Act), and strategic shifts away from China reliance.
Fed cuts year-end GDP forecast from 2.1% to 1.7%
Fed raises year-end core PCE forecast from 2.5% to 2.8%
Fed raises year-end unemployment forecast from 4.3% to 4.4%
Downward revisions to growth forecasts and the upward revisions to inflation and unemployment projections sounds like stagflation.
2% is the average 15-year GDP growth rate of the US. 1.7% is NOT stagnation, it’s still pretty decent growth, just a little below average.
Stagflation requires a stag. We’ve got the flation. Stagnation means little or no growth, so closer to 0% growth over some period of time. We might eventually get it, but 1.7% isn’t it.
“4 see 4.375%: No cuts
4 see 4.125%: 1 cut of 25 basis points
9 see 3.875%: 2 cuts of 25 basis points
2 see 3.625%: 3 cuts of 25 basis points.”
by the end of 2025.
So “4 see 4.375%”, “4 see 4.125%”, and “9 see 3.874%”. Based on this, the weighted average is 4.065% at yearend. I am excluding the outlier of “2 see 3.625%” (I am not a big fan of outliers). I can live with around 4.065%. Of course, these estimates are all guesses and not much to hang ones hat on. Not sure why the stock market got all excited about an estimated reduction from 4.375% to around 4.065% at end of year, which is only a .310% reduction.
Note that I am taking a weighted average of the estimates and excluding the outlier, the weight being the number of participants. I can show you the math if you like. FYI, a median using only 4 data points is not interesting to me. It makes for a pretty useless histogram.
“Fed Sticks to Wait-and-See, Sees Only 2 Cuts in 2025”
Total f***ing sham – a FED talking about rate cuts when CPI is running 3% a year coming off of nearly double digit inflation. These mothertruckers should be hauled off to the gulag for what they’re doing. “Stable prices” my asz. They are destroying the value of the dollar on purpose. Is it any wonder gold is soaring?
There is no reason to slow down QT. They could have waited until debt ceiling fight occurs. Wall Street loves it when they slow down QT.
Peter Schiff just came out and predicted double digit inflation just around the corner. And he didn’t want to say what the 1st digit of the double digit would be. Gold is heading for $4000/ounce. ENJOY!
I think gold is ultimately going to $10,000 per ounce in USD. The FED is “letting inflation run hot.” They told us this back in 2021.
“Bravo Company rumor control desk. You’re speaking on an unsecure line.”🤣🤣🛰️
Powell had the brashness to use the word “transitory” twice today. That hasn’t worked well for him in the past.
Whoa, $10,000! That means I gotta build a fortress somewhere and get bazooka training
Lots of interesting stuff going on in the precious metals markets now and very little of it has to do with all the talk about tariffs
IMO all the flows of physical bullion between countries has to to with settling huge OTC shorts in both gold and silver as well as other fancy derivative bets. These transactions are being settled in physical bullion rather than in paper or cash as has happened in the past
Some of this may also have to do with the COMEX becoming Basel III compliant on 1 July this year.
Lastly the huge moves in silver market are more than likely the big shorts selling to hit stops to chase our weak holders to try and cover their short bets at lower prices. With the concentration of positions in the silver market it is still subject to huge moves and manipulation.
Just remember that any futures exchange can unilaterally change or cancel any futures contract or the terms at any time
Had the Hunt Brothers take physical delivery of their silver they would have been okay. They didn’t and look what happened to them.
And as far as the price of precious metals…who knows what will happen as it appears that there is huge demand for numerous reasons.
Recommend people get on this gold train. It’s going much higher. The new US leadership is intent on monetizing the US gold onto the balance sheet. The higher the price, the better.
Currently gold is approximately at fair value to the dollar, based on historic inflation. Nothing to really prevent it to double or even triple from here though.
This is the soft landing sir
Gold is a bubble too, up 50% in one year. What the heck is that about?
It’s the everything bubble and it’s the biggest bubble ever.
I agree with your comment though.
Gold is not in a bubble. Gold is still THE preferred collateral that is universally accepted around the world. It’s the purchasing power of fiat currencies that is decreased, PLUS central banks and bullion banks are buying physical gold as well as trying to unwind all their gold leasing scams. The latter will continue to put pressure on physical demand. Simply supply and demand here.
No, the price of gold is not in a bubble.
What is happening is that almost 100 years of gold price suppression is finally ending and one of these days there will actually be a “free market” in gold.
What is changing is that the value of paper money (fiat) is falling as measured in terms of gold
Do what central bankers do, ignore what central bankers say.
Gold is going up because central banks and bullion banks are buying it as well as trying to unwind all their gold leasing scams. The latter will continue to put pressure on physical demand.
Problem there is central banksters don’t reveal to you their internal plan for why they are doing something. How do you know they aren’t just trying to create a retail buyers frenzy as a prelude to dumping their holdings and crashing the price of gold back down to the cost of production and refinement? They deal in creating currency. There’s no reason to destroy that currency’s value overnight as it would cause the public to abandon all pusuit of monetary aquisition. Might as well take out highway billboard ads saying we want to pay you in piles of dogshit because that’s what our banks are circulating. These guys are evil incarnate. They want to destroy the protection you seek in gold. They already suppress silver because none of their system can work without cheap electrical transmission, and that takes silver in vast quantities. Beware of what they do as much as what they say. It can turn on a dime, but one made from cheap base metals…not coin silver. Anything rapidly flying away from the 8-1 ratio is a warning sign. Cautiously safe to 76, then overtly risky.
LOL! Define “protection”. I have a large industrious family that actually works hard, looks out for each other, and own productive capital. We sleep just fine. I sense a whole lot of anger and angst in your post, but it may be that you don’t understand the difference between price and things of real value. Relax, because no one gets out alive. HOWEVER, time and time again, as my grandfather showed us all. Once all the political hacks are gone, and the war subsides (all wars are bankers wars) the assholes at the banks return to the same fundamentals and those with real collateral (assets of real value) get to thrive/innovate again. His business survived two world wars and a great depression, so I tend to think that he might know a thing or two. Seems humanity has to keep re-learning the same lessons.
Talking about your potential protection in a storage of value with those real metals. No problem with that concept. Metals make the world work. But a big problem with these central banks people who should stop trying to wreck that real value with their secretive manipulations. Their job is to tend to the currency that they circulate, not go after your “real value” investment by trying to break those markets. Those jerks abandoned the metal backing of their paper, so they should get the hell out of the metals and leave it to the people who have faith in those “real” investments. They can do their settlements in pound puppies for all I care. If their paper fails, we can hang them later on a cross of gold with silver nails.
“If their paper fails, we can hang them later on a cross of gold with silver nails.”
Love it! Unfortunately, the reality is that paper has failed, many times, and the true villains never get punished. The “paper/digital promises” will fail again, and with 8+ billion of us on this rock, the demand for energy and real resources/assets remains high. Eventually, MATH and PHYSICS wins.
Interesting times. Perhaps we need to have an annual “Wolf Street” conference to solve the world’s problems (or at least enjoy some good scotch together)
Regardless, hedge accordingly.
Totally agree it is a disgrace and very damaging for the nation and wrong to debase the dollar, wish more cared. When our elected officials repeatedly choose to do wrong (Congress and the presidents created the fed and appoint the fed policymakers), the voters should hold them accountable by voting them out, but over 95% of voters in the last election, and a lot of them are decent good hearted people, voted for the debasers (the uniparty Republicans and Democrats). Most voters have little idea what tptb are doing, deceived by all the media propaganda, and that the politicians they voted for are actually causing the inflation that they the voters rightfully dont like.
Looks like 4,3% fed fund rate. I plan accordingly.
Is change to 5B QT temporary?
It’s $20 billion of QT: $5 billion in Treasury QT plus MBS QT without cap, which has been running at $15 billion a month. so total QT is about $20 billion a month, half the prior pace.
The official motto, as per Powell today is: “slower for longer.”
It’s not “temporary.”
Perhaps “QT Infinity”? 🤣 (just kidding)
so when it’s time to print, print at $120 billion a month, but when it’s time to unprint, start at $90, then go to $60, then go to $20 billion.
looks like a bias toward inflation.
Sure does. But notice how long it takes for gas to go down at the pump even after oil price per barrel plummets…
Up like a rocket, down like a feather.
“so when it’s time to print, print at $120 billion a month, but when it’s time to unprint…” Common post.
That’s because when it’s time to print, it’a an emergency. By definition, when they un-print, times are good, and there’s no emergency despite how much we may hate the pain.
gattopardo, what was the emergency that justified printing from december 2020 through march 2022?
please be specific.
Thank you. Seems like a big downshift (for the treasury portion).
I found it very strange. Only last meeting Powell said QT has a long way to go….and now he goes to $5B per month for Treasury.
Why even $5B. Why not temporarily stop, wait and see. Perhaps it is a dovish signal to the market. He can’t control inflation so throws this bone to the optimists and speculators.
Or maybe he sees a lot happening since the last meeting… big government employee layoffs and the slowing impact those layoffs will have on the economy, reduced government spending, housing prices that are beginning to fall in response to high prices, high mortgage rates and higher inventory. Not ro mention geopolitical uncertainty, wars and more wars.
A lot has changed since February
QT now will now go on for twice as long at half the rate. Slower for longer.
“QT now will now go on for twice as long at half the rate. Slower for longer.”
Translation: even more pain – maximum pain – for those already suffering under crippling inflation.
Dear Depth Charge, you’re succeeding in perverting and twisting everything into your only-a-total-collapse-of-everything-will-make-me-happy narrative.
I was wondering the same thing. I thought the slowing of the pace was to get through the debt ceiling thing. Once thats resolved they should restart the 25 billion a month not this pitiful 5. I think If people need money they should sell their assets for whatever the free market will pay or they can pay a free market borrowing cost or go bankrupt.
The debt ceiling issue was the original explanation from the Fed for “pausing or slowing” QT. But during the press conference, Powell issued an update which I included in the article. So here it is again, quoted from upstairs:
[Update from Powell at the press conference: Powell said that after discussing these issues, participants “liked” the idea of going “slower for longer” with QT, to avoid any risks associated with withdrawing this much liquidity, and this “slower for longer” was the reason they effectively cut QT in half].
The second half of your comment doesn’t make sense and doesn’t apply to the Fed.
“Risks associated with withdrawing liquidity ” is, to my limited understanding, repo rates spiking, so I meant that if hedge funds or whoever dont want to pay a higher rate to borrow in the repo market to get their liquidiy, they can sell assets or go bankrupt. It seems like there’s enough liquidity out there, just people not wanting to lower their prices to get it.
SO, what this tells me is that I should expect EITHER: 0 cuts, or 5.
The status quo will be “wait and see.” If nothing to see? Nothing to do (growth, employment and inflation stay nearly the same as the last year: all decently high).
OR: Employment slows, and therefore growth (chicken or egg?), potentially (not necessarily) taking inflation down with it: Panic, 50bps cuts for a couple meetings and a “fed put” 25bps cut to show: we still have your back Wally.
The panic could be induced by a grinding bear market… which the Fed is “agnostic” to, but could point to growth or employment as justification.
The FOMC should provide a target on its balance sheet, not a nebulous “pace of decline of its securities holdings”.
Is it still quantitative tightening when the money stock is increasing at a normal pace?
1. Yes, QT is when the Fed reduces its securities holdings, thereby destroying money.
2. Money stock measures are worthless due to their arbitrary composition. Include ON RRPs in money stock, and they’ll look different. ON RRPs plunged by $2.2 trillion but that doesn’t count in money stock measures, so adios money stock measures.
Commercial bank credit, all banks, is up, so then are loans/investments = deposits.
The FOMC’s proviso “bank credit proxy” used to be included in the FOMC’s directive during the period Sept 66 – Sept 69.
But that’s debt, not liquidity.
QT is nothing more than letting assets mature & roll off without replacing them. There’s nothing special about that. They’re just destroying money they created out of thin without replacing it with new fake money / asset purchases.
Waller, Williams, and Logan previously remarked. They “believe the Fed can keep unloading bonds even when officials cut interest rates at some future date.”
We didn’t have a temporary increase in prices, we had a permanent increase in most prices.
So now the balance sheet runs off by $0.020 trillion or so a month at best – and with an April Fools ’25 starting point of about $6.700 trillion…it will take blah blah years..
Wolf’s QT monthly updates are going to be referencing “since May 2020” for a long time. Honestly maybe produce those quarterly now because it’s going to be like watching paint dry.
“it will take blah blah years”
Yes, that’s the point. QT infinity, LOL
Said it back in 2022; the FED will never roll off all the Great Recession and Covid QE it did. I still stand by that assertion.
sooperedd
Even before 2009, the Fed’s balance sheet grew with the economy. It has to grow in part because of:
1. Currency in circulation (liability on the Fed’s balance sheet) – the paper dollars in your pocket – for which there is a lot of demand, and the Fed has to provide them through the banking system. There is currently $2.36 trillion in currency in circulation.
2. Reserves — cash that banks put on deposit at the Fed, and in the past HAD to put on deposit at the Fed (liability on the Fed’s balance sheet). This can shrink, and QT will shrink it, but it cannot go to zero.
3. The new things since 2008: The government’s checking account, the TGA, the current desired level is $800 billion, a liability on the Fed’s balance sheet.
So you can add those three together, and that’s the minimum level of the Fed’s balance sheet. It will HAVE TO BE north of $5 trillion.
People who say that the balance sheet should somehow go back to 2008 don’t have a clue about what the Fed does and what’s on the Fed’s balance sheet. Reading these kinds of comments here year after year gets kind of tiring after a while.
Read this and learn something:
https://wolfstreet.com/2024/03/23/the-feds-liabilities-how-far-can-qt-go-whats-the-lowest-possible-level-of-the-balance-sheet-without-blowing-stuff-up/
They’re really (really) proud of the QT rolloff, which means they took the opportunity to make room for the next QE while the overheated financial markets were creating liquidity and printing cash (BTC Ponzi). He dodged the question of stimulus, and fiscal policy and that was a copout. If gov gives everyone 5K thats inflationary. and while he talks about employment and price stability, then he mentions elevated price levels which are confused with inflation, he deserves a callout on that. In MOM calculations when the month is over so is the inflation? Rhetorical questions and rhetorical answers. If the Fed were to drop rates now, the markets would punish them and they know it.
He totally nailed it on price level. People are pissed off about these high prices = price level. Even if prices haven’t moved higher, such as new cars, which are actually down a little, so there’s zero inflation year-over-year and over the past two years, but prices are very high = price level, and people are pissed off about the high price level of new cars though if there is now zero inflation on new cars. This happened across a lot of products and services.
people are pissed about the new high price levels because regardless of the data that shows wage increases, many have been left behind and are worse off than they were.
Right. I’d venture to say MOST are worse off than they were, with a select 10% or something doing much better.
Wolf,
Did we (I?) misunderstand the lead-up messaging about QT changes being a temporary response to concerns about the drain from quickly refilling the TGA when the cap is raised?
I get “slower for longer” but at $60B/year the Fed seems to have moved the timeframe of meaningful additional reduction of treasuries into the realm of decades! I at least would have thought the Fed would make the shift to rolling the surplus into T-Bills instead of increasing the balance sheets duration with shiny new notes and bonds replacing almost everything rolling off.
The leadup was “slow or pause” which would be “temporary.” Now they decided not to pause at all, and instead they just cut the pace in half to go twice as long.
Six months of QT pause would amount of $240 billion of delayed QT the current pace. Now they cut QT in half to $20 billion a month, so over the next six months, they’re $120 billion a head of the pause. Then it would take another six months for the current-pace QT to catch up with the NEW-pace QT. In other words, over the next 12 months, this slower pace of QT is actually faster than pausing for six months before continuing at the old pace.
The shift to T-bills we be announced at a later meeting. One step at a time.
Wolf,
It wasn’t clear to me that a MBS pause was ever on the table given how that runoff has constantly lagged, and isn’t nearly as tied to the treasuries involved with refilling the TGA? From my (pro QT) perspective, I would happily pause treasury runoff for six months and resume the old (already reduced) rate which would cover the $30 in paused runoff in barely over a month (and then continue at this healthy pace)
Given the new glacial treasury runoff rate would take 20(!) years to get treasuries down to their previous “Good Times” level this doesn’t feel to me like “longer” but rather “mission accomplished, get used to these elevated treasury levels on the balance sheet.”
I guess my question is can we truly view the treasury and MBS portions of the balance sheet as fully interchangeable and ignore the fact that the Fed seems to have essentially abandoned reducing their treasury holdings with two massive cuts to the rate?
“It wasn’t clear to me that a MBS pause was ever on the table”
What was on the table was replacing the MBS runoff with Treasury purchases, so the effect of pausing would have been QT of $0, instead of $40 billion a month, with MBS continuing to run off but runoff amounts being reinvested in T-bills.
We are in no hurry to cut rates. We are also in no hurry to hit the 2% inflation target, 2030 should be an acceptable timeline.
Higher for longer. The Fed has been saying for three years. People just don’t listen.
People have been listening, they simply don’t realize that the “higher for longer” that the fed is referring to is BOTH interest rates AND inflation (as in much higher than 2% for much longer).
Higher inflation for longer?
What do you think an out-of-control debt growth needs so it doesn’t blow up? Inflation. Everyone knows that. Yes, higher inflation (3-5%) for longer. Managing the huge government debt requires inflation. It also requires budget cutting and tax increases. All three. But we might not get that latter two. Even if we do, it might still take many years to get a a reasonable debt-to-GDP ratio
“What do you think an out-of-control debt growth needs so it doesn’t blow up? Inflation. Everyone knows that. Yes, higher inflation (3-5%) for longer.”
So you DO agree with me that the FED is a bunch of liars with their “2% target” BS?
Don’t forget, the administration is turning the Titanic away from or into trouble. Going ahead in uncharted direction. And they admit it will probably cause some economic pain and it doesn’t worry them.
Of course it doesn’t, they are all billionaires.
In the end, the top dawg will don women’s clothing and step off into the lifeboat. In his coat pocket will be the lollipop that he stole from little suzie after wishing her good luck and pointing out that’s there’s lots of space on the poop deck. Bon Voyage!
Exactly. Then he’ll step on grandma’s face and put her eye out with his high heel so as not to get his foot wet.
The Titanic got into trouble when it steered away from the iceberg thereby rupturing a lethal number of 5 of the “watertight” compartments with a grazing blow.
If it had crashed bow-first directly into the ‘berg, it would have damaged fewer of the compartments and remained afloat.
Some times it’s better to meet a painful problem head on rather than trying to avoid difficulties at all costs.
Exactly. Stove in the bow and lose some cargo in the holds. But the ship will stay afloat and even anchor to the berg. You may drift while working on the rescue plans, but you’ll buy more time for rational answers beyond “Everyman for himself”. There’s no point in having a ship if everyone is expected to go sailing away on his own deck chair bouyed by flotsam.
$5B a month is laughably inadequate.
Maybr the Fed thinks DOGE is doing all the QT we need.
$20 billion a month!!!
The odds of a recession are still about 50/50 from what I have been hearing and reading. Know what? It doesn’t matter. The air has started coming out of the stock market balloon, and it is going a lot lower.
You will see the S&P at 4500 again, and if there is a recession, the bottom could be much lower than that. Some of he talking heads on TV are still predicting 6400, 6600, 6800 this year, they must be using Fentanyl.
The S&P 500 market capitalization was over $50 Trillion when it peaked in February.
i tend to agree with you. for years, it was qe and zirp that levitated markets. now it’s the belief that those things will come back.
they need them to come back, as valuations are laughably absurd outside of a zirp and qe environment.
There talking there book up,financial advisors only make money on you
Where will people put all that cash on the sidelines, especially if rates come down a hair or two? Markets may stay elevated until there’s a black sheep event, which in today’s world feels like it won’t be too long.
There is no “cash on the sidelines.” It’s a myth. This cash buys something that someone else is selling, and that someone else takes that cash and puts it on the sidelines, and the effect on the sidelines is zero. Every dollar someone puts into the market comes right out of the market via the seller. The only thing that changes is the buying or selling pressure.
I’m talking about savings. What happened to all the cash-flush consumers you’ve been telling us about? The wage increases that have been beating inflation for a few years. The new income from T Bills and money markets. The record low debt rates and receiving credit card balances. Aren’t Americans still pretty flush with savings?
Yes, Americans are flusher with cash than ever, but “cash on the sidelines” is a myth for the mechanical reasons I explained.
Reread your comment and i follow you now. Thanks for the explainer, sometimes takes a few attempts to make it through the thick skull.
AI Overview
The ideal sample size depends on your research goals, the population size, and the desired level of precision, but in general, a larger sample size is better for accuracy and statistical significance, with a minimum of 100 often considered the starting point.
You can’t apply stats metrics in this situation. The only meaning of their announcement is that there will be somewhere between 0 and 2 cuts. If they would just stick with ‘data dependent’.
Everything we have seen points to inflation levelling out too high or rising. In this political atmosphere the Fed can’t raise rates without causing a storm. But then what possible excuse could they have to cut rates? The only thing I can think of is a big drop in global corporate profits leading to a big rise in layoffs.
Next week we see the 24Q4 figures for GDP and US Corporate Profits. Q4 was still the Goldilocks economy at the end of the golden Biden era with monster corporate profits. What could possibly go wrong with global corporate profits in 2025?
1st qtr. 2025 R-gDp negative? Velocity is down. That is evidenced by (1) the drop in large CDs on the Assets and Liabilities of Commercial Banks in the United States – H.8 and (2) the drop in interest rates
Nov. (-) 7.8
Dec. (-) 4.8
Jan. (-) 12.5
Feb. (+) 1.6
the president is now demanding that the fed cut rates. i hope they do and that the 10 year blows out.
Bessent needs to have a talk with Trump explaining short-term interest rates, inflation, and long-term interest rates. I thought they already had this talk.
Everybody is talking — but is anyone listening?
And explain difference between AC and DC, what 60 Hz means on back of appliance, and difference between 2 stroke and 4 stroke.
No need to explain what the monument at Pearl H is about. Already done by then Chief of staff Kelly (no relation) who was with him on ferry ride there and was asked: ‘So what is this about? ‘
Source for last: Bob Woodward.
“The Fed would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition (ease!) their way into the economy. Do the right thing. April 2nd is Liberation Day in America!!!”
Do the right thing. Now that’s funny.
Now Trump gets to blame the Fed for a sagging economy since they just won’t ease fast enough for him….
All the WFH government workers have now been forced back into their downtown offices in the Swamp. Traffic is horrendous. They now have 2 and 3 hour commutes both ways from their country homes. They now are buying low cost condos in the city to be closer to work and moving out of their rental homes in the far out countryside. They won’t be able to do nothing for God and Country on their phony WFH job and work 2 and three jobs at the same time on multiple laptops on their kitchen table. sucking off the taxpayer and then some. Their gravy train is over,
Good riddance! Join the rest of us who have been working for our pay.
Trump said many months ago that he would fire 50,000 bureaucrats on day one. Well, it is taking longer, some federal judges think they are little dictators, but I am guessing it will be more than 50,000.
Rate cuts = the fentanyl of central bankers.
Powell is “jonesin'” worst of all.
By slowing the run-off of Treasury securities to $5 billion a month, will the Fed increase its purchases of T-bills, or will it begin to accumulate 10-year notes?
They’ve been talking about switching to T-bills for over a year, preparing markets for an announcement to that effect. So it looks like they will provide more details in the near future about the switch to T-bills. They make one announcement at a time.