Amid only one dissent, FOMC Cuts by 25 basis points. “Dot Plot” sees 50 basis points in additional cuts in 2025. Risks shift to labor market. QT continues.
By Wolf Richter for WOLF STREET.
The FOMC voted today to cut the Fed’s five policy rates by 25 basis points, the first cut in 2025, after cutting by 100 basis points in 2024, which then had caused long-term yields to spike by 100 basis points as the bond market fretted about accelerating inflation amid a lax Fed.
The FOMC cut its five policy rates:
- Target range for the federal funds rate to 4.0%-4.25%.
- Interest it pays the banks on reserves: 4.15%.
- Interest it pays on overnight Reverse Repos (ON RRPs): 4.0%
- Interest it charges on overnight Repos at its Standing Repo Facility: 4.25%.
- Interest it charges banks to borrow at the “Discount Window” at 4.25%.
In addition, the FOMC voted to continue QT at the current pace.
There was only one dissent: The New Guy.
One out of 12 voting members on the FOMC dissented and voted against the 25-basis point cut: Stephen Miran, hastily sworn in yesterday, wanted a 50-basis point cut. He replaced Adriana Kugler who didn’t show up to the last meeting and then quit.
In theory, dissents are good. This endless strive for unanimity under Powell bred the false impression that everyone agreed even when there was a lot of disagreement and uncertainty about everything.
Who didn’t dissent but could have: Governors Michelle Bowman and Christopher Waller. Bowman and Waller had already dissented at the July meeting, wanting a 25-basis point cut, when the Fed held rates. Appointed by Trump 1, they are now vying for Powell’s job. Trump wants rate cutters in that job. But they voted with the majority and maybe were thereby able to nudge the wording of the Statement into their direction – such as the shift of the balance of risks to the labor market, and away from inflation.
Trump tried to get governor Lisa Cook fired before the meeting, but that effort failed, and she voted with the majority.
What changed in the FOMC’s statement:
The big change in the Statement was the shift in risks to the weakening labor market, and away from inflation, as “downside risks to employment have risen” and “’jobs gains have slowed,” while the “unemployment rate has edged up.”
New: “Recent indicators suggest that growth of economic activity moderated in the first half of the year.”
Old: “Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year.”
New: “Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated.”
Old: “The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated.”
New: “The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.”
Old: “The Committee is attentive to the risks to both sides of its dual mandate.”
So, the balance of risks shifts to the labor market, and away from inflation. That shift to the weakening labor market keeps cropping up in the rest of the statement.
New: “In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4 to 4‑1/4 percent.”
Old: “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.”
New: “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.”
Old: “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 “dot plot” less dovish than some expected.
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 June meeting. The SEP is one of the ways with which the Fed communicates to the public what its thoughts are about the future of the economy, the labor market, inflation, and monetary policy – given the state of today’s economy. If something changes, the participants’ views change, and adios prior dot plot.
In the June dot plot, the Fed saw two 25-basis-point cuts by the end of 2025; it also saw rising inflation and unemployment rates.
Today, it saw one more 25-basis point cut than in June, while projections for inflation and the unemployment rate remained the same, and the projections for GDP growth got bumped up from June’s projections.
Dot plot sees 2 more cuts in 2025. Today’s median projection for the end of 2025 of the mid-point of the federal funds rate fell to 3.625%, indicating 50 basis in cuts, in addition to today’s 25 basis point cut.
Projections by the 19 FOMC members for the midpoints of the federal funds rate by the end of 2025 (bold = median):
- 1 sees 5 cuts (Stephen Miran is that you?)
- 9 see 2 more cuts
- 2 see 1 more cut
- 6 see no more cuts
- 1 sees 1 rate hike.
These median values of the SEP are neither decisions nor commitments. Members change their projections as the economic situation changes.
The “longer-run” federal funds rate in 2028 and beyond remained at 3.0%. In other words, in 2028 and beyond, the Fed sees the midpoint of the federal funds rate (3.0%) to be 1 percentage point higher than it sees the PCE inflation rate (2.0%), unchanged from the prior SEP.
Inflation projections remained high:
- Headline PCE inflation by the end of 2025 remained at 3.0% (same as in prior SEP). The most recent headline PCE price index (for July) was 2.6%.
- “Core PCE” inflation by the end of 2025 remained at 3.1% (same as in prior SEP). The most recent actual core PCE price index (for July) was 2.9%.
- Hitting the 2.0% inflation target would have to wait till 2028 (same as in prior SEP).
GDP growth projections got ratcheted up to 1.6%, from 1.4% in the prior SEP.
And the median projections for 2026 GDP growth rose to 1.8%, from 1.6% in the prior SEP (2% is the 15-year average real GDP growth of the US).
Unemployment rate projections unchanged: The median projection for the unemployment rate at the end of 2025 remained at 4.5%. In August, the unemployment rate was 4.3%. These are still historically relatively low unemployment rates.
The whole statement:
Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.
In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4 to 4‑1/4 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; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem; Jeffrey R. Schmid; and Christopher J. Waller. Voting against this action was Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/2 percentage point at this meeting.
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Effectively every single reporter has called “Bullshit” this time, rather than their regular pattern of asking weird BS questions.
I spoke too soon. Essentially all muckraking in the later questions as the press conference went on.
The 25 bpt reduction in the FFR seems to have stimulated hope in the over priced asset markets.
The long term interest rates increased.
MAGA = make assets great again
This administration is going to pump this already insane everything bubble into levels never before imagined – at the expense of the US dollar. Every working person is about to get screwed, blued and tattooed.
Wolf: This is a perfect time for you to share your big picture economic prescription for the American economy? Long term remedy, not a quarterly elixir. I dislike government intervention in the economy, despise crony capitalism, believe the twelve central planners at the FED should give up on trying to temper both sides of the business cycle, but I understand your prescription will include directions for federal government and the FED.I look forward to hearing what the medicine is even if it tastes bad. I want to see, smell, hear and taste the medicine even if Congress or President will never go along with implementing it.
That one reporter called out the Fed for always being two years away from 2% inflation…
That was good! The SEP now projects a return to 2% inflation in 2028, which would be 7 YEARS of above-target inflation. If inflation is elevated for that long, there’s no chance expectations will be well-anchored. They’re lying through their teeth and they know it.
Also, notice how the range for inflation in 2028 is anchored at 2. It’s unanimous. That’s incredibly perplexing, no? No one believes below 2%, and no one believes above. Oh, and Fed, how will you bring inflation to 2% by further CUTTING rates? Just bonkers.
2028 is an election year so the administration will have the number down to 2 by that time. Sarcastically.
Back in 2022, the fed projected core PCE to return to 2.1% by the end of 2025.
Their projections are meaningless.
Well inflation was below 2% for the decade preceding COVID, and most fed commentary was about how to increase inflation. Didn’t take any time at all for the commenters to completely forget this and act like we’re in 1972 all over. The issue is that people “anchor” on the negative rather than realistic expectations.
The Fed is trying to manage the financial carnage caused by their ignorance of the economic destruction inherent in the acceptance of QE.
Not to mention the savage revaluation of long term debt when QE was officially stopped.
There is no 2% goal anymore. The unspoken goal is now 3%.
Hence they are CUTTING with Core PCE at 2.9% because 2.9% is too low.
Oddly the 5-year breakeven is 2.4%, as if some bond market participants don’t get it.
What do you mean they called bullshit? Like they didn’t buy the Fed’s reasoning? I didn’t see the questions so I just don’t know what specially you’re referencing.
They implied that the SEP projections did not jibe with current inflation data, or even stated Fed goals for that matter. Powell said that unemployment was low many times, and said that shrinking supply for labor was meeting shrinking demand for labor (aka unemployment not expected to increase much at all). Someone asked Powell, that given that situation, what good would it be to cut rates? Powell was at a loss for cogent response to the direct question. Many reporters gave him similar inexplicable zingers.
Jerome Powell try not to be an incompetent buffoon challenge: impossible.
Thank you for the overview! I’ll have to start watching the conference again. Usually I skip because of the inane questions.
He should just be like Trump. “We are working hard on that. You’ll probably know in about two weeks.”
Easy.
Had a boss like that; “Ahh, just let me think about that, and I’ll get back to you later.” Econ degree, first job was with Dunn and Bradstreet.
I believe that “Someone” was Mike McKee with Bloomberg. He also asked an interesting follow-up question. If our softening job market could be a response from companies due to the new tariffs?.. Alot of US companies have either started a hiring freeze or are considering to implement one in the near future. IMO a rate won’t fix that problem either.
Another great reporter interaction — he called Powell out asking whether the Fed was being honest about the 2% inflation goal. The reporter said that the Fed has pretty much consistently said that “2% inflation will be achieved in two years” every time they make an announcement. My Personal analogy is the character Wimpy in the old Popeye cartoons who always sais, “I will gladly pay you Tuesday for a hamburger today”. Assuming that the Fed were to finally make good on their SEP projection they gave today, it would mean seven straight years that inflation will have been “2 years away”. The Fed is obviously making a bald faced lie about their “committed serious intention” to reach 2% — ever. Much like the Popeye cartoons, all we have in the scene now are drunken sailors and Wimpy. Powell is the perfect figurehead for the role of Wimpy.
Yep. The real goal is 3%. Hence cutting rates when Core PCE is only 2.9% (too low). We’re in inning one of managing a national debt emergency through currency devaluation, and fooling treasury investors is important for that.
I’m a bit disappointed Powell blamed much of the inflation on tariffs and claimed disinflation in services.
Transitory 2.0? Hopefully not.
Having expectations of people like Powell is just asking to be disappointed.
The author of this blog always had high expectations towards Powell and FED actions.
The author of this blog called the Fed: The Most Reckless Fed Ever
Google that phrase, LOL
That was at in early 2021 when the Fed was at 0% and doing mega-QE, and inflation was at 7% and going higher.
Now the Fed is at 4%, it has done $2.4 trillion of QT and is still doing QT, and inflation is below 3%. Can you not see the difference?
many people don’t understand wolf.
you see, it is the same in politics, at least in spain. I think it is the same in EEUU.
You could agree with some measures from republicans and with some measures from democrats.
That kind of thinking seems to make most of the humanity to go angry. For those who thinks politics and economics are some kind of football match were you either are from one team or another, for those people, wolf is the worst kind of person.
I had been looking a lot this blog, for more than years now, and I still can’t tell what Wolf thinks about Trump. For sure he likes tariffs , but Trump? meh, maybe but it is not 100% sure. he talks about measures, not persons.
if you take an stupid measure for sure he will call you stupid. Same with smart measures.
problem with humanity is that a very large percentage of them are enough stupid to think this is a football game ( I mean the one you play with the foot, mistakenly called soccer in your country).
Even if your team is hurting you and the enemy is doing good for you.
Wolf just try to use common sense for god sake, and I miss it a lot in many areas of life.
Wolf is against financial irresponsability and bad projections for his country. That’s it.
give him a break and chill bro.
And stay tune. You came here for the true. Not for some opinion and that is why you are here.
For me you are just a Real Madrid fan saying Messi is a bad player
( hope you all get it ✌️🤣, happy friday from spain)
FOMC statement as Mr. Wolf quotes: “New“ “The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.”
Seems like managing expectations on the FOMC’s 2% inflation target. Maybe language next meeting that the 2% target to be reached “in time” will be changed to: “in the fullness of time” like a Bible prophecy.
Inflation regressive taxation is here to stay: “Give to Caesar what is Caesar’s” like the taxation in the New Testament Matthew 22:21.
Quite simply the best analytics and dissemination of Fed Speak I’ve ever seen. Where were you when Greenspan unloaded his convoluted press briefings?
They reduced the short term interest rate by 25 bpt leaving the term treasuries under priced, perhaps.
Maybe not. Only love can break your heart.
Powell said this was a “risk-management” cut, as Wolf talked about in an earlier article.
Nonetheless, cutting in the face of rising inflation seems like insanity. No one really knows the employment situation. The unemployment rate has supposedly barely changed despite supposedly much lower jobs numbers. Huh? Maybe this is possible if the whole labor market is being reduced, but still the jobs numbers seem too low for a marginal increase in the unemployment rate.
Interesting, all FOMC members voted for the cut except for Trump’s lapdog Miran. This was a nice “in your face” to Trump. I generally agree with Trump on most of his policies, but he is a complete jackass when it comes to the Fed and interest rates. I guess this is a major side effect of being a real estate guy.
the decent vote was because he wanted it to be 2 basis points.. MORE than what was decided.
Did you read the article?
Miran only dissented because he wanted a BIGGER rate cut. He was 100% following the party line and actively advocating for a 50bp drop.
He didn’t give the finger to any of his handlers.
He also wanted 5 more cuts this year, probably. Trump Whitehouse wants inflation so badly for unclear reasons.
He’s propped up by debt and maybe wants to pay less?
And some above are shocked by Powell !
Apart from this Miran puppet, how does the rest of the West’s central banks manage without these dog and pony shows?
Inflate away our debt…. that’s likely the reason. But that assumes Trump actually cares about the country.
Trump is a narcissist – who wants to be known as the greatest president ever. He does not care about the country. So I’ve just been trying to think what’s his end game?
Inflation helps the rich and asset holders. Lower rates with help CRE. But those still don’t seem like the motive. There’s other ways to get rich.
I’m really curious what he’s think at the moment
Crypto
The endgame for a Dump Truck is to be filled with trash.
I had a coworker like this. He would say “we have to finish breaking it, before we can fix it.” (I mean, the currency isn’t yet Zimbabwe status).
The only 3-term president in US history was during a time of crisis. The BEST crises are the fully engineered kind.
How can we engorge the wealthy while making the rest clamor for a savior?
Destroy the common measure of “value,” instill fear, and generally make a nation (even a globe?) quite “back footed.”
People will be begging for the Greater Reset, demanding the power brokers to tighten their grips, and gladly give away anything and everything, just to support their oppressors.
MUG-shots: 2028!
Did you read my comment? Here it is again:
“Interesting, all FOMC members voted for the cut except for Trump’s lapdog Miran. This was a nice “in your face” to Trump.”
The cut refers to today’s .25 cut. The lapdog Miran refers to the fact Miran (Trump) wanted a deeper cut. Trump did not get what he wanted, which was .50 or more. He will be ranting and raving about it for the next few days.
Trump came out on Truth Social demanding interest rates be cut to 0%.
He really is trying to blow up the bond market, isn’t he? It’s like he’s poking and needling the bond vigilantes to get them to wake up from their long slumber.
Exactly why I’m shorting long-duration bond funds, and holding emergency funds in European currencies (not the pound).
Foolish nonsense about the fool, Miran.
He and Pulte are speculators at heart. It’ll always be pump, pump, pump!
The entire real estate industry is certain that mortgages will be back to 3% by spring. I want some of whatever hallucinogenic they are on.
Get ready for 8%, realtors.
The speculators are hiding in the bushes, waiting for a clear signal on how to proceed. If they hide much longer, they’ll miss their chance for making a bundle.
So much of life is about taking a risk when the picture remains unclear. Without daring, there is no progress. Economic actions like investment are no different; only the financial prizes are higher, with fewer men willing to take a stand.
Historically, Fed-cutting in the face of stubborn-and-rising inflation only happens when there’s a recession either just started or just about to start.
Every recession since 1970, except maybe for COVID/2020, has featured this strange and unexpected Fed behavior.
The actual recession doesn’t get recognized officially for 6-12 months.
The Fed cannot come out and say that a recession is imminent, since that would cause undue panic and make the recession worse.
So they cut last year in the face of inflation that was even worse and no recession
Full time employment has been declining since peaking in January. Other labor metrics have been soft since mid 2024.
The 2024 rate cut might not qualify since inflation was falling at the time, though still elevated. Inflation is no longer falling.
Alternatively it’s possible that for workers, the recession has already started, but we’re still close enough to the peak that most don’t feel it yet, except those who’ve already lost income.
Real GDP might end up showing a peak in January as well, if the preliminary Q2 number gets revised down.
One can see why NBER takes its time in calling recessions, there just isn’t enough accurate real time data to know!
Bagehot’s Ghost
“Full time employment has been declining since peaking in January. Other labor metrics have been soft since mid 2024.”
Manipulative stupid BS. Look at a one-year chart of full-time employment and repent.
In January, there was the huge UP-adjustment of full-time employment of 2.39 million — as part of the annual revision of the employment data in the household survey. The following month, part of the up-adjustment was revised back down. I discussed this here in a big long article, but you never read anything here.
Since December, full-time employment has grown by 970,000.
Your whole theory, built on this manipulative BS foundation, is manipulative clueless BS 🤮
KUDOS FED. Perfect timing. The rate-of-change in monetary flows, the proxy for R-gDp, is now falling. N-gDp level targeting at work.
I’m assuming ‘R’ is real and ‘N’ is nominal, but I have no assumption for why you think this is perfect timing. Can you fill us in? From my perspective, financial conditions were already Loose and have now been made Looser. Sort of like Dumb and Dumber.
Friedman and Schwartz put the distributed lag effect of money flows, the volume and velocity of money, into range buckets. I observed that they were mathematical constants using legal reserves.
If you go back to the G.6 Debit and Deposit Turnover release, you’ll discover what the definition of money should be.
The roc in R-gDp flows decelerates in the 4th qtr. The roc in inflation decelerates late in the 4th qtr. and also in the 1st qtr. of 2026.
The FED’s timing is perfect according to N-gDp level targeting.
Thanks for the explanation.
Is a targeted 2% inflation rate price stability or price manipulation? Does. In an economy where even a very physically or mentally challenged individual can find a job, does a 62.4% workforce participation indicate full employment?
It’s tough to get to any destination when you don’t know where you and don’t know where you’re going, isn’t it?
Between 25 and 65 the participation rate is 83.7. The only time higher is in 22 unless you go back to the 90s, which was especially high compared to other time periods.
Dunno what the obsession with senior citizens and children working is.
Good question that I began to analyze from the perspective of the everyday person, such as myself.
“Is a targeted 2% inflation rate price stability or price manipulation?”
It is price manipulation.
It is the planned steady demise of the US dollar…..at at least 2% a yr.
Stable, per the dictionary = unchanging
What a uselesss bunch! Go big and make something move! At least .50 basis.. The banks were already lowering rates on anticipating this.. so no big deal on most financial items.. especially mortgages.. so.. when do they meet again to lower it(IF they do) with 3 months left of 2025?
Ten year Treasuries dropped from 4.05% to 3.99% almost instantly after the announcement of the cut. As Powell started talking and reality kicked in, the rates zoomed back up to 4.07%, with all notes and bonds yields above yesterday’s close. The bond market is more worried now about inflation than yesterday.
Gold up a tad, but the increase in long treasuries will tamp that exuberance down as the clock ticks away.
Overall Fed nothing burger as we drift sideways in a volatile stagflation range. If your bored this week, wait a year. Money mkts decaying as dollar slowly drips lower (down almost 11% ytd).
It’s very funny to look at the US markets in Euros. “All time highs” yeah sure.
$spx in $usd is up about 11% versus $xde, which I find amazing!
$SPX +12.2296
$SPX:$XDE = -1.64%
With all the fuss about foreign cash leaving America, this makes me very curious! I know there’s a narrative about huge pensions in the Euro, being like Titanic ships, that haven’t changed course yet — because investing planning boards are glacially slow to gather for lobster dinners.
I truly was expecting a different result, and if you have a different approach, I’m all ears — and presumably, Wolf will scold us both?
And over 5 years the dollar is flat against the euro
Gold’s exuberance won’t be tamped down for long, even without Miran kicking around.
Very roughly, since production cost numbers are 2-3 years old, and some inflation has to be added to costs, it will take about about 1500 US$ to produce one ounce of gold selling for 3600 US$. That’s from the big ones like Barrick.
It would cost $4.32 cents to produce 36 of the new 100$ bills with anti- counterfeit features,
Meh. Buy the rumor, sell the news. Everyone already knew this was coming, so it probably won’t change much. On a long term chart you can’t even see the blip.
One of the reporters questions hit the nail on the head. The feds reckless asset buying and rate cuts drove housing up such that those that owned already got rewarded and those who did not are now priced out.
Powell went on to pat himself on the back stating that his rate cuts saved house builders, completely ignoring the fact that those new houses were for insane prices.
Very depressing to see him completely miss the point, or miss the point on purpose. It really felt like “f you we got ours”.
Have you looked at his financial filings and what he owns? It’s not a surprise. He’s admitted in a congressional hearing he hasn’t done grocery shopping personally in a long time.
You guys need to drop these pathetic personal attacks. Has Trump EVER done personal shopping? For groceries.
Admitting that you don’t do your own grocery shopping isn’t a personal attack.
So do you like Miran and his mentor more? If Powell is a reckless spendthrift money printer, what are those guys?
I find it interesting from the dot plot is that 9 members see 2 cuts, and 6 members see none. Obviously based on which statistic “comes out on top”. It will very interesting to see which way it goes for the rest of the year.
Whenever there’s a sharp, almost evenly-split divide on the committee, the doves almost always win out historically. That’s why federal funds futures are pricing in something like a 75% chance of -0.75% in cumulative easing (vs -0.50%) this year rather than being a 50-50 proposition.
Miran….. I read his paper, of Mar a Lago accords fame (or infamy). To those who might also read it, you may come away thinking the same thing I did….this guy went to Harvard??? It reads kind of like AI, where the words and sentences make sense, mostly, but it just doesn’t tie together.
Harvard ain’t what it used to be.
Harvard “used to be” a divinity school.
great description of ‘AI speak’!
Who are you talking about? The mention of Mara Lago? confuses me.
It looks like that paper was published last November and he seems to be expecting a much more intelligent strategy from Trump than what we’ve had so far.
He says for instance that Trump wants the US to remain the reserve currency, while elsewhere: “A reserve currency must be convertible into other currencies, and a reserve asset must be a stable store of value governed by reliable rule of law.”
There’s one mention in there of using Trump’s mercurial nature as negotiating leverage, but I don’t get the impression that he’s imagining that means “50% tariffs on India because Modi won’t nominate me for a Nobel Peace Prize.”
Most of the paper talks about the idea that tariffs won’t be inflationary if currencies adjust to compensate. Ie. tariffs announced against China cause yuan to depreciate which offsets the cost of the tariff – that’s the mechanism for “China paying for it”, but it’s also at the cost of hurting US exporters, so there’s a tradeoff. If currencies don’t adjust that way then US consumer prices increase until production is brought back, which then reduces tariff revenue.
The example he uses from 2018 shows the yuan losing value in tandem with the tariff rate increasing and the result is a relatively low cost increase in the US. Conversely, this time the dollar is the one losing value, and doing so in the context of a dramatically higher tariff rate, so I don’t see how his mechanism is going to work.
None of this is really my thing and I was skimming his paper while I was supposed to be working, so feel free to correct me.
What I found interesting in that paper was a stated assumption that we’ve been undervaluing our wonderful “Security Umbrella” asset and that those living under it should be happy to pay up for it’s benefits rather than (implicitly) free riding.
I wonder if the Miran read “The Empire of Debt” and got his idea from that entertaining book in the chapter: “How Empires Work”.
Historically low unemployment rate and a 4% that was the normal before 2008.
No need to cut. Powell has early dementia.
Early “get outta dodge relatively unscathed” most folks interfacing willingly or unwillingly w Mr T. end up in precarious and undesirable situations. They front run the cuts yet they are not guaranteed covers all angles and calendar days pass to May 2026 and come what “may” beyond that. Powell has done his job given the “working conditions “ have and are changing…. Not in a good way…Commitee will be feelin it… note No dissenters except the malaligned newcomer.
Exactly. The goal is to create the illusion of crisis in the labor market to justify giving the market what it wants because the 2% inflation goal is unattainable when service inflation is rearing it’s ugly head. Higher interest rates are a great tool to keep money from flowing into risky investments.
In previous decades, anything between 5 to 6% was considered full employment. Policymakers were uncomfortable with letting it get much lower because whenever it did, inflation rose.
Now unemployment is in the low 4’s and they’re panicking.
I believe they are trying to stem the political harassment/attempted coup of the fed with placating gestures. Will .25 help inflation? Certainly not, but will it cause raging inflation, also certainly not. Would .5, and continued large cuts, likely cause raging inflation? Probably.
“Perfect is the enemy of good” as has been said. These quarters look like placating gestures to keep the dumbasses hand out of the cookie jar and a hope to hold out for sanity in 2028.
I think this is the truest reason for the cut. I remember right before the 2024 election a couple FED watchers said they would most likely cut rates to placate the incumbent since historically that is what they do. Low and behold they cut which to me showed that the FED is independent-ISH but still subject to the political whims of the administration.
Does anyone know why 30Y mortgage rates track the 10Y treasury rather than the 30Y treasury?
Is it because there is prepayment risk on mortgages whereas there is not for treasuries? Perhaps average prepayment makes mortgages mature around 10Y typically or something?
The average 30-year mortgage gets paid off in about 7 years (through sale or refi). This might have shifted up a little recently, but it’s still less than 10 years.
Wolf, good call on the return of the vigilantes if they cut. Selling was strong today. Now we see if we get follow through the next few weeks.
Solid job by the Feds. This is all but guaranteed to jump start the housing market with lower rates. Expect sellers to lower asking prices to attract even more. Inventory will be at record lows in 6 months as buyers market right around the corner.
XHB down. Seems market is thinking otherwise.
Can I have some of whatever you’ve been smoking?
Mostly an edible person now but happy to share. Wolf indicated it was a circus so went for a clown comment.
I need some of this as well LOL!
10-year yield rose 6 basis points since this morning, and mortgage rates by 9 basis points. Going in the opposite direction. They did that last year, rising by 100 basis points in four months on 100 basis points in rate cuts amid rising inflation. So…
Yes, I refuse to use /s with my sarcasm! To me it defeats the point. That said, sarcasm is not my strength!
Unfortunately I think your comment wasn’t quite ridiculous for people to detect the sarcasm. I didnt at first. A good amount of people actually earnestly believe what you said sadly.
It’s going to take sub 3% mortgage rates to jump start the housing market at current prices. Do we want to return to free money era?
YES! I think the “5 cuts” was a typo. It should have said “50”!
Let’s get rates to -5 to -10%, paying “qualified borrowers” such as large corporates to take out “infrastructure loans.”
This is bound to stimulate growth!
It’s like UBI, but for the rich. We can all get paid to borrow money and use it to mine crypto, program AI and build robots. I call it “New” MMT: NMMT (although some people have mistaken the N for “No”).
You can just slide the Nobel under the door, I’m busy streaming and doom scrolling.
A 50% price drop might jump start the housing market like it did during Housing Bust 1. The only difference is that this time it won’t be labeled a “crisis”. Collectively, it will just be labeled a “correction”.
was that sarcastic in intent? It probably should have been.
Sarcasm at its finest.
Why would sellers lower prices unto a market ‘jumped started’ by lower rates?
Sounded a lot like previous statements, we are adjusting based on today’s environment, and will review the future data to determine future adjustments.
Summary of today’s meeting: a 4.3% unemployment rate that’s below their own NAIRU estimates and is only a hair above the ~4.2% L12M average is somehow a MORE URGENT CONCERN that 5 YEARS of above-target inflation that’s moving in the wrong direction.
What a bunch of clowns! It’d be funny if their reckless decisions didn’t hurt the 99% of Americans who aren’t part of the moneyed Wall Street class.
I find this fascinating but what’s fascinating is millions upon millions of Americans thinking professional sports are competitive…the entire business model is antitrust exempted, team owners share one pot 32 ways as the NFL is, last or first and the paid athelic actors get paid, win or lose… absolutely amazing…truly circus and bread…sign me up coach…
Some of those baseball actors are pretty convincing. I guess any good looking guy could take over for the same bucks.
Signing you up?
I would love nothing more than the 10 year treasuries and corresponding mortgage rates to go up by 25 basis points. It would shut up all these real estate web sites blaming the fed for high mortgage rates.
If they don’t anticipate inflation to get to 2% until 2028, then let’s assume an average of 2.5% for 2026 and 2027. As a bond holder or t-bill holder, I would want at least 1.5-2% return above inflation, which means 4.0% “minimum”. Add on the mortgage spread (2%-2.5%), then mortgage rates should be in the neighborhood of 6.0-7.0% for the next two years, “at minimum”.
Are my assumptions that wrong?
BruceP, wait a month or so, ten years will be at 4.5%. If the Fed cuts again, and inflation remains the same, ten years will be at 5.0% in a few more months. Last time the Fed cut 50 bp, ten years went up 100 bp. No guarantees, but it is the likely scenario based on the recent past.
Actually, the Fed can be blamed for the high mortgage rates. They can be blamed for their historical actions since 2008. Congress should take a large share of the blame too. Oh, and why not the American people while we’re at it. If we’re all being honest with ourselves, some of us and our neighbors are also to blame. Doesn’t mean we can’t turn this ship around though. Especially with Wolf at the helm. Wolf Richter for Congress!
67% of eligible voters have smartly figured out it doesn’t matter who you vote for. Same/same but different result.
Mortgage rates now are NOT HIGH AT ALL and are on the low-side of normal historically. Isn’t that obvious when they are 5.75%?
If everything is on the up & up (no more firings), when does Trump get a majority on the board?
Never.
What happened at 2:55 today, the stocks I follow were heading south and they all suddenly reversed at 2:55?
Supply and demand. The price of a stock is controlled by whomever shows up to buy or sell at that moment. More buyers showed up than sellers at those price levels as time went on.
Who do we think voted for the rate hike? The audacity, the gumption, the gall! 🤣
Can you imagine a giant round table with clowns all around and the head clown. Bozo, having a giant red nose? Bozo’s first name could be Jay!
And they use a spinning wheel to determine how much of a rate change they will announce.
🤡 🎪
Cool, as expected……we are moving another step closer to TINA environment an T-bill and chill is on the trajectory of dying a slow (or fast) death. 10/20/30 yield still suck. Guess we should all plow our money in Mag 7, hype stock or Crypto…go big or go home right? /s
Sure, FED can raise rates but unless inflation is completely out of control, under current environment and pressure, hard to see that happening, love to be wrong on this though…
Patience Birdman. Better to be in the first lifeboat than go down with the ship!
It puzzles me that nobody ever seems to talk about TIPS here. If your bet is on 3.5% average inflation as far as the eye can see then at current real yields you’re getting 5.18 / 5.65 / 5.90 for the 10 / 20 / 30. True, those real yields are down a bit over the last month but they could also tick up again and get you back above 6% soon.
What am I missing?
“It puzzles me that nobody ever seems to talk about TIPS here.”
We’ve been talking about it. Here are a couple of my comments that I could easily find:
On Aug 8:
We started shifting some of our T-bills into 10-year TIPS at the auction in July (I mentioned that here) since I’m concerned inflation might not just vanish, that it might become a 3-4% feature here. TIPS pay a variable inflation compensation based on CPI that is added to the principal, and the stuff we bought also pays close to 2% on this growing principal in coupon interest. I figured if CPI is around 3% over the 10 years on average, they’ll yield about 5%. In periods when inflation spikes to 6%, they’ll pay 8%. (We have those in our tax-deferred accounts so we don’t have to mess with the tax issues that TIPS come with).
TIPS used to have a negative yield during QE (instead of the 2% at the last auction). Those were really shitty deals. But that was the Fed’s doing back then. Now the Fed is unloading its TIPS and is replacing them with regular notes as I mentioned above.
https://wolfstreet.com/2025/08/07/fed-balance-sheet-qt-19-billion-in-july-2-32-trillion-from-peak-to-6-64-trillion/#comment-648366
On July 26:
TIPS have been a pretty good deal for new buyers recently, better than in decades. 10-year TIPS ran through the auction this week at a yield of 1.99% (interest to be paid), plus CPI-based inflation compensation. So if CPI is about 3% over the long term, the TIPS will yield 5%. In a year when CPI is 6%, the TIPS will yield 8%. In a year with CPI at 0%, they will yield close to 2%.
The interest yield used to be negative for many years. I’m not sure what this 2% interest yield indicates, maybe overconfidence in the market that inflation will go away, and so there is less demand for TIPS now than in the years before, and so they’re not bidding them up the prices (which pushes down the yield) like they used to? We couldn’t resist and nibbled on those TIPS at the auction (in tax-deferred accounts so we don’t have to mess with the tax situation that TIPS produce).
https://wolfstreet.com/2025/07/25/treasury-market-still-sees-no-rate-cut-by-september-30-year-treasury-yield-near-5-the-yield-curve-and-real-mortgage-rates/#comment-646285
The 10-year TIPS I bought at the July auction were sold at a yield of nearly 2% (+inflation protection based on CPI). There is another TIPS auction tomorrow, same issue reopened. It seems it will go through the auction with a slightly lower yield, maybe around 1.7%.
Thanks. I’ll go digest those.
Spread collapsed from about 2.20 down to 1.70 on 10 years, last I checked. But the bigger problem: you have to trust this administration, and potentially what follows it, to report a real CPI. I figured that’s why spreads blew out in the first place, but seeing them come back down throws me.
Agree. I’ve recently picked up a bogey of the same on my risk radar.
What you may be missing is that Inflation as calculated by CPI-U could be 1.5-2% over the long term. I doubt it, but it’s possible. Some people are convinced the government’s CPI calculation is, shall we say, “malleable” so they don’t trust TIPS. I doubt that too, at least beyond the edges.
I recently looked up the adjusted value for the 30-year TIPS issued in April 1998. I wanted to get a sense of long-term results. It’s over 2.00 something as of 10/31/2025, meaning measured prices have doubled. That overall consumer prices have doubled in that period seems pretty reasonable to me. It’s at least in the ballpark. I also view the “real yield” as additional inflation protection so that’s an important component of TIPS to me. My wife and I do have a sizable TIPS position in retirement accounts, but that’s primarily because we’re both retired, very conservative investors, live modestly, and don’t need an additional return. We just want the insurance TIPS provide.
It may have been on this board where I read it recently, but I like the Buffett quote: “Don’t risk what you have and need for what you don’t have and don’t need.”
There’s also something about TIPS math I’m not sure many people know if you buy TIPS at a discount in the secondary market. For example, the February 2013 30-year has a coupon of .625%, so you can purchase it well under its current inflation adjusted value. Investing $100,000 in this TIPS would have recently given you an inflation adjusted value of $140,984 (I think current interest rates are below this entry point). Since future inflation adjustments (and the coupon) are based on the current inflation adjusted value, you actually get a higher “real yield” on your initial investment the higher inflation is.
After the investment, you will get a coupon of .625%, plus the inflation adjustment. If inflation is 3%, your annual yield will be:
($140,984 x .00625) + ($140,984 x .03) = $5,110.67 (5.11%)
Note: I divided the annualized return by the initial investment.
At 5% inflation:
($140,984 x .00625) + ($140,984 x .05) = $7,930.35 (7.93%)
At 7% inflation:
($140,984 x .00625) + ($140,984 x .07 = $10,750.03 (10.75%)
Even though inflation is rising by 2% increments in this example, the nominal return is rising by 2.82% with each increment of higher inflation. In other words, for each additional one percent of inflation, your return increases by 1.41%. This is a function of the fact you purchased the bond at a steep discount: $140,984 inflation adjusted value divided by $100,000 investment = 1.41.
I’ve simplified my example because the coupon is paid semi-annually and inflation adjustments are done monthly. I’m also open to being wrong on any of my calculations if anybody sees anything. I recognized this pattern myself and am very open to being wrong in some way, or that someone else has reported on this effect.
“if you buy TIPS at a discount in the secondary market”
Somewhat relatedly – I’ve found it’s a better deal to buy longer-term agencies at a discount to par with a smaller coupon (from when rates were lower), rather than at or close to par with a big coupon. Less risk if the bond is callable or you need to sell before maturity.
ShortTLT,
Yes, I do that too. I figure if rates go low enough that the bond is called, at least I’m compensated by the difference between the discount I bought it at and the par value I’m paid. Though bonds getting called can mess with my tax planning, as discussed below, so I usually buy ones with a very low coupon. I also live in a high tax state, so I focus on agency bonds that are state tax exempt outside retirement accounts.
Relatedly, if you buy at a discount in the secondary market, you can choose to recognize the discount incrementally for the duration of the bond (same as original issue discount) or have the discount portion taxed in the year of maturity. This allows you to effectively defer interest income represented by the discount until the year the bond matures. With careful planning, you can ladder these bonds into the future and defer interest income into later years and you’ll know ahead of time how much income you’ll recognize in any given year. It’s an effective planning tool to smooth income over time in order to stay in a lower tax bracket.
Ahhh, ShortTLT and rojogrande, thanks for the discussion. I’ve dabbled in the agency auctions for long maturities and been annoyed when they get called in a year or less. I just assumed that I was going to be the sucker at the table in the secondary market and better to avoid getting nibbled by the sharks there. But those are strong arguments to browse the secondary markets so I don’t have to go shopping as often after buying at par from an auction and having it called.
Untrustworthy inflation data (and other economic data) going forward? Given recent trends, it’s only a matter of time before markets begin to reflect this.
That’s a pretty weak return on cash. Unless some commenters on here are millionaires or trust fund children…Are people really content with 2% real return on their money?
That’s not the question. The question is: how much RISK are you willing to take to get a real return that is larger than 2%?
This is the most fundamental financial function: risk v. return.
It alarms me to no end that the concept of risk has vanished from such a large part of the population. People think stocks and cryptos are risk free. This is a setup for financial mayhem.
Wolf, you missed housing, they rank second only to stocks in investment risk
“This is a setup for financial mayhem.”
and they all KNOW the Fed will save them. That is the perception as to the purpose for existence of the Fed, in their minds.
We will be saved….regardless of what happens.
From lender of last resort to the preventer of market dips, corrections, and cycles.
That knowledge has proven to be fake before, with devastating consequences for many investors. Young people just don’t know, and older people might be tempted to think that this time it’s different.
@JustAsking,
“they all KNOW the Fed will save them. That is the perception as to the purpose for existence of the Fed, in their minds.”
Close to a decade ago, I asked Mr. Money Mustache if his entire strategy was based on the Fed, and was surprised by him responing to my question in his forum with the answer of Yes!!! So, in his mind, that whole get rich on FIRE is absolutely dependent upon the Fed being there to back you up, despite all the time he devotes to self-sufficiency stories on his site.
Apparently the Philips Curve kinda suggests that, rising unemployment relative to a falling or stagnant inflation rate is a time for hard booze, but I need to confirm that, since I don’t drink.
“The current situation, where slowing job growth coexists with above-target inflation, puts pressure on the traditional Phillips curve model”
Drink! It’s a rate of change thing, that’s not easily resolved (anytime soon).
Yet unemployment UNDER 5% is not a reason to cut.
I remember Bernanke saying, when unemployment went to 11%, that he would normalize rates when unemployment returned to 6%.
Now 4.3% is a reason to cut?
5% used to be consider FULL employment.
What a waste of effort. Inflation will eat up any pemnies you might save with a slightly lower mortgage rate.
The Dems should be singing for joy. Average people hate inflation more than anything. Trump will be the last Red POTUS for a very long time.
Yes I’m so confused by this!!! He won an election because of that. I’m not sure the end game here.
The Fed cut rate to ease gov debt payment. A1/4 point cut isn’t good
enough. Negative rates, Fed rates below the cpi, are better. The gov will cut debt faster. As long as the cpi will not accelerate that’s fine with JP.
“The Fed cut rate to ease gov debt payment”
Yes, which comes directly from t-bill holders like me, who rely on them to offset inflation after tax on a large portion of our portfolio, and buy time until equities are only semi-overpriced.
Ditto. We may only partially disagree about what value to assign to “semi-overpriced”. I’m wavering between 2001, 2008, 2020, or something in between.
The conservative treasury buyers who think the stock market is going to crash might actually be preventing that from happening.
They provide a cheap source of government financing.
How do these people get up there with a straight face and claim to have a 2 percent inflation objective? Shameless.
“Random guesses using old flawed data”
“What is the Fed SEP?”
One last return to ZIRP so the pigmen can buy up the rest of all assets and everything that matters. This country is finished.
Nope.
Big man, pig man, haha, charade, you are, woo!
You well-heeled big wheel, haha, charade, you are
And when your hand is on your heart
You’re nearly a good laugh, almost a joker
With your head down in the pig bin, saying, “Keep on digging”
Pig stain on your fat chin, what do you hope to find
Down in the pig mine?
-Pink Floyd, Pigs
It all smells like elephant dung. The lions and tigers have been freed to slaughter the spectators. And the only thing you can take home is lightly salted peanuts. So how did Wolf conclude it must have been like a circus?
This Fed is a Travesty, a Sham, and a Mockery.
The Federal Reserve is an excellent and very well run central bank which has done a great job in regulating and supervising the US banking system and which makes intelligent decisions on little things such as interest rate policy for overnight short term interest rates with its 12 member FOMC.
At least one person here has a steady supply of very good pakalolo that will blow one’s mind.
“The Federal Reserve…has done a great job in regulating and supervising the US banking system”
This assertion, were it to be copy-pasted into a time machine and sent back to 2006, would not have aged gracefully over the following three years.
There were a lot of smart people at the FED. They just matriculated at the wrong university.
Maybe a bit off-discussion, but I’m bothered by the sudden resignation of Kugler. The fact that the President is trying to fire both Powell and Cook with allegations of fraudulent behavior, I wonder if Kugler was blackmailed into resigning. I don’t believe she has ever stated a reason for her resignation.
Some guy named Vito made Kugler and offer she couldn’t refuse. Vito works for Trump.
Could always be worse. Hill & Bill know how to stack them.
Is that what happened? I heard she took a job down-state. Something about needing a career path that’s less of a burden. She said she talked to a guy who was telling her that if we don’t lower interest rates than many asset owners could end up ah, underwater. Especially ones with multiple mortgages. Not sure what that was about.
Based upon actual results it would appear that the Feds “2% target” applies to real interest rates and not inflation.
4% fed funds and 2.6% inflation doesnt equate to 2% “real” interest rates.
https://fred.stlouisfed.org/series/REAINTRATREARAT10Y
I don’t believe they are serious or even care about keeping inflation at 2% anymore.
Stock market bubble update: Top seven tech stocks now valued
over $20 TRILLION.
$20,000,000,000,000 –that is now $2500 for every man, woman and child on the planet.
You will see the S&P 500 at 4500 again. Might have to wait a while but it will be seen again.
COUNT ON IT.
Lol unhinged
ACE
It is manifest that they do not care about inflation. From “stable” to 2% ceiling to 2% floor………
this is the game of the financiers and Fed. Destroy the currency so the numbers go up.
Its like a poker game in which all agree to break the chips in half to make the game twice as big.
Ever since 2009, the Fed has been in pump pump pump mode.
I’m beginning to think they want inflation to be this high. Prior to 2018 the last time initial claims were this low was 1973.
I mean I wanted higher rates sooner and no cuts including last year but whatever lol
Will WolfStreet moderate its content to appease the regime? Many are asking this
No, but I do moderate its content to appease my soul 🤣
Good. Keep fighting the good fight
Don’t agree with all things here but glad you are keeping your independence
See you in Gitmo, Wolf. Hopefully not CECOT.
“Free” money is the root cause of this decades long economic nonsense. Political pressure from naive, economic illiterate public & those with ulterior motives might not be the only reason with 25 basis pts drop.
Many might very well with good intentions but their advancement in political life is ultimately what they care about.
Naive public pays whatever the outcome is.
The irony is naive economic illiterate public always are seeking savior without realizing it is their collective weak consumer psychology brings the demise upon themselves.
Only grateful that it is 25 basis pts not 50 as many have hoped for.
This insanity will not end as long as the patching mechanism still patches the ever expanding hole.
“Big shot” to me is memory of what we went through – securitization of & trading not just mortgage products but insanity.
That all started with one ACT which started this low I/R circus.
The yield on 10-year bonds fell below 4% today but then rose again to 4.08%. I believe this reflects concerns about the uncertainty caused by uncontrolled inflation.
The Bank of Canada also cut rates by 0.25%.
Now the realtors are “predicting” $2 million dollar Greater Toronto Area bungalows, and $4,000 a month rent for a one-bedroom apartment.
But the trade wars have impacted many jobs here in Ontario, so who’s gonna buy overpriced real estate because of a measly 0.25% savings on mortgages?
Mortgages aren’t going down as to interest rates. They are headed up.
Have you been tracking the GTA condo crash? Been written up everywhere.
Dear Chairman Pow-Wow,
Please lower rates to zero percent, so every home in America will be $2 Million or more. Free money for everyone! We can rename our country (just like Gulf of America) to
The United States of Free and Easy Money, Groovy, man!
Thank you so much, Uncle Pow-Wow!
I wouldn’t mind seeing a lower overnight rate, IF the longer-term bond yields increase dramatically. A bit more QT couldn’t hurt!
A 10-year treasury yield of say 7%, inflation at 3% and an overnight rate of 3% wouldn’t be terrible, no?
Depends on the slope between the two. If the 1yr is at 5.5% and the 2yr at 6%, sure.
I am jumping on 20 year Treasuries if they hit 6%. It may not happen, but if Trump controls the Fed with his lapdogs in May 2026, it will likely happen.
The newest member, Stephen Miran wrote a policy thesis in 2024 titled “A User’s Guide to Restructuring the Global Trading System” that I found worth the read for some context on him. A quick Google search and it pops up.
Yeah, I read that, it makes sense if you believe that demographics don’t matter. FAIL. Remember, eCONomics is a social science.
“Social science” is an oxymoron.
WB – check x4…
may we all find a better day.
Good luck Dustoff, you are a good man in many ways.
To “help” those seeking employment, we cut the rates….
but what of the damage to nearly everyone of the inflation that runs unaddressed?
The game is to pump assets and to dream up excuses and reasoning.
“We will be data dependent” J Powell
“We will see through the data when appropriate” J Powell
But the grand decision is to IGNORE the legacy inflation and the current inflation.
If Powell was serious about inflation he’d extract excess liquidity by increasing QT.
$5B a month of treasury rolloff is woefully inadequate.
Resume the $50B monthly rolloff.
Please, DUMP ALL MBS!
I triple dog dare them. Goldman really needs to STFU.
Since the reduction of QT in March, the total monthly roll-off (including Treasuries and MBS) has averaged $24 billion a month.
$39 billion in Aug
$19 billion in Jul
$13 billion in Jun
$36 billion in May
$14 billion in Apr
I discuss this in my QT articles once a month.
Is it correct that the US generates ~80 billion or so in MBS monthly?
Would it be correct to suggest that ~24 billion of that ~80 billion is the roll off from the Fed?
I’m pretty sure that’s not right somehow. But is there a way to judge the scale of the MBS roll-off at the Fed relative to the volume of new MBS creation? Something like “this is how much MBS the market is used to receiving”?
“Is it correct that the US generates ~80 billion or so in MBS monthly?”
So the thing to look at is “net issuance” meaning total issuance minus payoffs that period. So this is the amount by which MBS balances grow.
During the record year of 2021, net issuance was $890 billion, or about $74 billion a month.
But home sales have plunged and refis have collapsed. So net issuance of MBS has slowed to a trickle. Through August this year, net issuance was $88 billion, or about $10.1 billion a month.
In terms of net issuance, it doesn’t matter who holds the MBS, whether the Fed or a bond fund, it doesn’t affect net issuance.
But as the Fed steps away from the MBS market, private investors have to absorb ALL of the net issuance, plus whatever proceeds from its MBS passthrough principal payments the Fed doesn’t reinvest.
Can you guess who wrote the following lifted from a RCP article?
“Mr. Powell’s mismanagement of the Federal Reserve is beyond the pale.
In recent years, the central bank lost nearly $200 billion from a mismatch of their assets and liabilities.
The money managers at the Federal Reserve Bank of New York are losing money on a daily basis. They have been paying banks 4.5 percent, but their portfolio generates only 2.5 percent.
Meanwhile, the Fed’s bond portfolio is completely under water, with some estimating its losses at $250 billion.
It’s like the savings and loan crash of the 1980s. Or the failing Silicon Valley Bank crash a couple years ago.”
1. The Fed doesn’t exist to make a profit.
2. Losses don’t matter to the Fed (it creates money every time it pays for something and destroys money every time it gets paid for something).
3. The Fed has to remit any profit it makes to the US Treasury (sort of a special 100% income tax). Since 2001, the Fed has remitted $1.35 trillion to the US Treasury. When it started making losses in Sep 2022, those remittances stopped.
4. So when the Fed has losses, it’s a problem only for the US Treasury (taxpayer) because it doesn’t get any remittances (taxes) from the Fed.
https://wolfstreet.com/2025/03/21/feds-operating-losses-declined-to-78-billion-in-2024-unrealized-losses-rose-to-1-06-trillion/
The Federal Reserve is not trying to ‘time’ the markets and can hold as much of 30-year Treasuries as it wants to without losing a single penny as it holds them until maturity. Many more investors should start taking a very similar approach as the US federal debt nears $38 trillion in US Treasuries.
I had to look it up, Mr strong dollar Kudrow, or better- calling for a housewife to be on the board to understand prices, what happened?!? How, called for JP to have already resigned, suspending Cook and calling Miran the “real hero” is a bit much to take.
It’s stock vs. flow. You drain reserves while capping interest payments to bank-held savings.
Lending by the commercial banks is inflationary (expands both the volume and turnover of new money). Lending by the non-banks is non-inflationary (matches savers with borrowers and investments).
Interest is the price of loan funds. The price of money is the reciprocal of the price level.
N-gDp level targeting suggest now is the time to cut rates.
The 1966 Interest Rate Adjustment Act is the paradigm. I.e., Reg. Q ceilings should be reimposed. If a saver-holder wants higher yields, then he should invest via the nonbank markets. Deposit insurance should be cut back to $100,000 per depositor. Payroll accounts should be an exclusion.
But you can’t cut interest on reserve rates much lower than a bank’s NIM or the banks will expand credit.
The Fed is becoming less relevant every day. As predicted, the yield on the ten year is UP this morning.
RISK is being repriced, despite Jerome and Trumpty-dumpty’s kabuki theater.
LMFAO!
We live in bizarro world where the US dollar went up after the Fed announced they would debase the currency with rate cuts. Up is down. Black is white.
Walking on thin ice, I fear, but as Nostradamus I see the 10yr treasury headed to about 3.55% by this time next year.
My best friend says,”The 3-month yield would fall faster than the 10-year yield, leading to a “normal” upward-sloping curve where long-term rates are higher than short-term rates”.
That’s gonna hurt my money mkt monthly!
Meanwhile dollar looking anemic and, interestingly, even though spreads are taboo and pointless, the current 10yr-3m spread is zero, pointing towards a nice smooth stagflationary decent.
However, if we get more rate cuts, inflation probably goes from sticky and transitory, to ugly, and of course the outcome of the above Nostradamus forecast will be even lower.
This is why my money mkt is desperately in need of a transition plan — the future is bleaker by the day.
The yields on 10-year US Treasuries was up again today to 4.10%.
“Why mortgage rates are actually going up after the Fed cut interest rates.
‘We actually anticipated the possibility that rates would tick up after the Fed announcement,’ economist says” -MarketWatch
No sh_t Sherlock. Just read Wolf Street. 10 year, 20 year, and 30 year Treasuries went up 100 bp after the Fed cut 50 bp last year.
Axios: Supreme Court to hear Trump tariff case Nov. 5, as Cook appeal looms
Trump’s economic agenda collided with the Supreme Court Thursday, as Trump asked the justices to let him fire Fed governor Lisa Cook and the court scheduled arguments on a challenge to his trade agenda.
Why it matters: The outcome of both cases has major implications for the future of the economy and administration policy.
State of play: A federal appellate court struck down tariffs late last month after they were imposed by Trump under the International Emergency Economic Powers Act. The court argued the import taxes were an overreach of power.
But the judge said the tariffs can stay in place until Oct. 14 to give the Trump administration time to appeal to the Supreme Court.
Earlier this month, the high court agreed to put the case on a fast track and promptly hear the case, which it will now do Nov. 5.
The big picture: With that hearing scheduled, the court will now have to decide whether it will hear a separate case on Fed governor Cook, whose unprecedented firing came after housing regulator Bill Pulte alleged the official committed mortgage fraud.
The firing came as Trump sought to exert more control over the Fed, who he has repeatedly pressed to lower interest rates.
Zoom in: An appeals court Monday night ruled that Cook could keep her job, a decision that came one day before the Fed kicked off a crucial policy meeting. (It ended on Wednesday with the Fed announcing a rate cut.)
“The government faces irreparable harm ‘from an order allowing a removed officer to continue exercising the executive power’ over the President’s objection,” Trump lawyers wrote in its application for the Supreme Court to issue a stay in that ruling.
What to watch: Trump, as well as top White House officials, have argued in recent weeks that the backtracking his tariff agenda would be catastrophic for the U.S.
MW: Major U.S. stock indexes all book record closing highs — including the Russell 2000’s first in 4 years
I distinctly remember DJT jawboning Powell against raising Fed Funds to the then 2% inflation rate…….during DJTs first term.
Shouldnt the President be concerned about the soundness of the nation’s currency? Why is he delving into Crypto which is nothing more than a perceived substitute for the Dollar?
Yes, and DJT called crapto a Ponzi scheme before jumping full swing into it when he and his family and friends realized they could use it to make literally billions of dollars.