Flying blind and despite rising inflation.
By Wolf Richter for WOLF STREET.
The FOMC voted today to cut the Fed’s five policy rates by another 25 basis points, after cutting by 25 basis points in September, and by 100 basis points in 2024.
The “data-dependent” Fed made this decision based on a lack of data due to the government shutdown, and what little data it got, showed further accelerating inflation. And the statement today acknowledged that.
The FOMC cut its five policy rates:
- Target range for the federal funds rate to 3.75%-4.0%.
- Interest it pays the banks on reserves: 3.9%.
- Interest it pays on overnight Reverse Repos (ON RRPs): 3.75%
- Interest it charges on overnight Repos at its Standing Repo Facility (SRF): 4.0%.
- Interest it charges banks to borrow at the “Discount Window” at 4.0%.
QT will end on December 1, according to the statement. The Fed has already shed $2.4 trillion in assets since QT began in July 2022.
But MBS will continue to roll off the balance sheet at full speed, and the proceeds will be reinvested in Treasury bills, according to the Implementation Notes.
During the press conference, Powell confirmed that the balance sheet would remain flat for a while, and as non-reserve liabilities, such as currency in circulation will to continue to rise, reserves will continue to shrink, a soft form of QT, which he pointed out.
There were 2 dissents, but in opposite directions:
Governor Stephen Miran voted against the 25-basis point cut; he wanted a 50-basis point cut.
Jeffrey Schmid, President of the Kansas City Fed, voted against the cut; he wanted no cut.
What changed in the FOMC’s statement:
The Statement acknowledges the lack of data.
New: “Available indicators suggest that economic activity has been expanding at a moderate pace.”
Old: “Recent indicators suggest that growth of economic activity moderated in the first half of the year.”
New: “Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments.”
Old: “Job gains have slowed, and the unemployment rate has edged up but remains low.”
New: “Inflation has moved up since earlier in the year and remains somewhat elevated.”
Old: “Inflation has moved up and 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 rose in recent months.”
Old: “The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.”
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 3-3/4 to 4 percent.”
Old: “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.”
New, the end of QT: “The Committee decided to conclude the reduction of its aggregate securities holdings on December 1.”
Old: “The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.”
This was a no-dot-plot meeting – one of the four a year when the FOMC does not release a “Summary of Economic Projections,” which includes the “dot plot” that indicates how each FOMC member that day sees the development of future policy rates, inflation, GDP growth, and unemployment. The FOMC will release the next Summary of Economic Projections at the December meeting.
The whole statement:
“Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments. Inflation has moved up since earlier in the year 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 rose in recent months.
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 3-3/4 to 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 decided to conclude the reduction of its aggregate securities holdings on December 1. 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; and Christopher J. Waller. Voting against this action were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/2 percentage point at this meeting, and Jeffrey R. Schmid, who preferred no change to the target range for the federal funds rate at this meeting.”
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Cool, I want FED’s Doc brown time machine too so I can go back beyond 2024 and maybe back to great depression peiod and see how things all played out..lol
“after cutting by 25 basis points in September, and by 100 basis points in 2024”
Its all based on this “Narrative” around jobs. Of course it has not shown up in data yet, but you can see this everywhere in media: layoffs and slow college graduate job market are CONSTANTLY beaten into you despite the historically low unemployment rate.
This is all gaslighting.
Just like the other big “Narrative” being forced down everyones throat that AI is the second coming of JFC.
“WE will be data dependent”
“WE will see through the data when appropriate”
“2% inflation is our target”
“Current rates are “restrictive” ”
Yet the Fed cuts with inflation over 2%, current rates restricting what, exactly?
Even the WSJ is picking up on the double talk
“The Fed said quantitative easing would stoke inflation when doing so was the Fed’s goal, but now claims its decision to maintain a large balance sheet is irrelevant to inflation.”
MBS QT into Tbills. Isn’t this QE or at least similar to Operation Twist?
Opposite. This converts long-term security holdings to short-term holdings. It’s a REVERSE operating twist.
I assume this is to keep the govt lights on since the deficit is almost entirely funded with short term T-Bill debt.
There aren’t enough T-bills out there now for the Fed to replace its $2.1 trillion MBS with T-bills. The $6.4 trillion in T-bills that are out there now are spoken for; so the government will have to issue $2 trillion more in T-bills so that the Fed can replace its MBS with T-bills, and the market will have to absorb $2.1 trillion in MBS over time. This will spread out over years.
I was going to ask something along the same lines.
If the Fed is selling/let run off MBS and using the proceeds/slack created to buy Treasury bills, would the most likely (not to say inevitable, in a world so manipulated and rife with unexpected results) be that,
1) Mortgage rates might *rise* (the Fed reducing/eliminating its purchases of mortgage related securities making higher rates necessary to lure in market-oriented MBS buyers)
2) Treasury bills rate fall as Fed now using freed up resources to buy *those* instead (Fed as policy-driven, not market-driven buyer). (Whither Treasury *bond* rates?).
Even if I am misunderstanding the specifics, the whole process does certainly point out how the Fed’s Money-Printer-of-Sauron can move rove from asset class to asset class, largely/completely distorting market (vs. policy) driven price/rate of return signals.
“1) Mortgage rates might *rise*…”
yes might, at least in relationship to the 10-year Treasury yield. This will likely keep the spread wider between mortgage rates and the 10-year yield.
“2) Treasury bills rate fall as…”
probably not. T-bill yields are largely bracketed by the Fed’s policy rates. If T-bill yields rise enough above the Fed’s interest on reserves (IOR), banks will shift some of their reserves to T-bills, which would push T-bill yields back down.
Yup. Will only add fuel to the fire for those who want GSEs to buy MBS, a bad idea whose time has come.
I don’t follow. The GSEs are the makers (and then sellers) of MBS-es. Are you saying somebody wants the GSEs to make them, sell them, and then buy them right back? I haven’t come across that argument yet.
Wolf,
JPOW said that he is noticing disinflation in services. He said it out loud during his written remark. Everything you have published here is screaming we have inflation in services? Can you comment?
He is still talking about it as I’m writing this. But your question refers to what he said a few minutes ago, that disinflation is in the housing part of services, and yes, housing inflation has come down a lot, and then stopped coming down, and then we had that outlier drop in OER:
https://wolfstreet.com/2025/10/24/massive-outlier-in-owners-equivalent-of-rent-pushed-down-cpi-core-cpi-core-services-cpi-something-went-awry-at-the-bls/
Federal Reserve Powell had defined disinflation as a slowing or stoppage of inflation; i.e., the slope of the inflation line going down and then there is the 2% inflation target for the Fed’s minimum, not the 0% the worker’s wallet needs. The amount of disinflation is not defined by Powell and could be minuscule; with both Mr. Wolf’s work being absolutely correct and Powell’s statement “technically” correct.
Below 0% is deflation. 0% to 2% is undefined in Powell’s comments, but would probably just be not meeting goal or target.
The Fed’s preferred inflation gauge, PCE is now over 21,000
if you take June of 2021 as a starting point, at 2% per year the PCE should be around 17,700. That is a big MISS by an outfit bound to a 2% YOY target.
Flat prices for years is the only likely chance of getting back on that 2% trajectory. The Fed would never allow deflation.
BTW, who has ever actually seen “deflation”? (or the “soft landing” for that matter)
J J Pettigrew
Wait a minute. You’re not citing an inflation gauge at all. You’re citing Personal Consumption Expenditures (PCE) = “consumer spending” in billions of dollars = $21,110 billion or $21.11 trillion annual rate now vs. $17.7 trillion in June 2022 (not June 2021). Those are the dollar amounts in annual rates spent by consumers.
For the PCE inflation measure, you have to look for the “PCE Price Index.” It is now 127.28, up by 2.7% from a year ago. In June 2022, it was 116.6. So cumulative inflation from June 2022 to Sep 2025 was 9.2%.
Thanks for the correction
SO, from March of 2021 to today, up 18.5% (107 to 127)
at 2% a yr from 3/21 to today, compounded, we should be circa 116. We are at circa 127.
Would enjoy a journalist to point this out as well as drive home the fact we are still over the 2% “target”….and this warrants a cut?
Powell must be getting tremendous pressure due to the cost of servicing this mountain of debt.
Wolf,
I hope someone asks JPOW question about OER outlier and its impact on latest CPI? Lets see if media is going to do what they are supposed to do and ask right questions.
Ending QT feels quite premature (even though I know the Fed has worked off far more from it balance sheet than some expected years ago). The resurrected standing repo facility has been working just fine, and there are even surplus funds in the ONRPP. Perhaps we are just barely barely reaching the edge of “ample” but why not push a bit further to force a bit of capital reallocation instead of keeping a bloated balance sheet.
10-year Treasury yield spikes by 8 basis points so far, pretty strong reaction to something.
If this continues and hold, that date the rape and marry house narrative is looking more and more hilarious by the day. Can we please get 30yrs back above 7% again please?
Too bad with this rate cut, we’re moving another step closer to TINA environment for savers again…better plow all your money into Crypto and meme stock now /s
Totally TINA time again!
“Date the rape” is a darkly hilarious Freudian slip in this context.
haha I noticed that after I finished my post, definitely a Freudian slip on my part, although for some FOMO buyers that took that message to heart and acted on it…..I sure they have some level of that sentiment now especially if they are looking to refin at our historic all time low rates 2-3 yrs ago.
Maybe the fact that the fed has clearly abandoned their inflation target.
I encourage it. I’ll take a lower rate in the short term to get 10 plus percent when they get smacked in the face with raging inflation.
Go for more, Pelvis !
AI Overview The highest 10-year rate in 1982 was around \(15\%\) in the first four months of the year, with a specific high of \(14.19\%\) on March 30.
Powell is getting squeamish about future rate cuts. Maybe the current level is about right and we may be should “wait a cycle,” he said, and that this would come out in the minutes.
Makes sense, since all the Taylor rule estimations are saying the rate should be 4-4.5%. I think he’s willing to dip a quarter point lower but doesn’t want to diverge much more than that.
They should wait until after Nvidia surpasses Fed’s Total Assets. At this rate by December, tops. Then cut 50 points. It’s only logical.
Blackrock assets under management (AUM) already nearly TWICE the Fed’s balance sheet.
I really hope this is simply a strategic move so that they can up rates again in the event of an inflationary resurgence, because otherwise this is approaching seriously reckless territory for the Fed.
I smell a rat. You get inflation, they get a new half billion dollar ballroom, where they can eat caviar and laugh at how pitiful your life has become. They’re going to Weimar it. That has always been the path.
“They’re going to Weimar it. That has always been the path.”
In more ways then one.
“they get a new half billion dollar ballroom, where they can eat caviar and laugh…..”
Thats ok!!, guess we get to eat our cake too!!!!!!!!!!
Caviar is more often served at small private parties than in giant ballrooms. The rich prefer to stay rich…
Trump loves the grand style, or he wouldn’t have built that ballroom. He’d be that extravagant for sure.
The old Waspy “pretend I am poorer than I am” values got waylaid somewhere around 9/11 and have been MIA for a long time…
Howdy DC. You smell Govern ment and it sure does stink. Always has and always will.
“They’re going to Weimar it. That has always been the path.”
Agreed…but going back to the US exit from Bretton Woods 50+ years ago and gold backing before that.
The Keynesian notion that “just a bit” of fiscal/trade deficits are “just the thing” to optimize suboptimal free mkts and will self-correct…ignores the drug addict nature of every political class everywhere in all eras of human history.
Unmooring “money” from some supply-limiting factor is simply an inevitable invitation to terminal inflationary abuse.
There are worse things than a slow drip of inflation. Like everywhere social immiseration, Great Depression, World War 2 ….
I realize the word “social” is probably repugnant in itself to a certain cohort, and automatically redolent of communism. But “break everything overnight arrogantly and see what happens” is different from “create a responsible path to a new normal of sound practices.”
I think a lot of people think you can’t have inflation if you have a gold standard, and that simply was never true. You had periods of high inflation. Regular people very rarely bought stuff with gold, it was generally used for inter-bank settlements. People still used paper money in the form of gold (or silver)-backed dollars, and banks always printed far more than they had reserves of metals for, hence inflation. The difference was that when the economy turned a little sour, banks didn’t have enough gold to settle payments with and the banking system would lock up and the economy would crash hard, throwing everyone out of work and into poverty. Prices would also crash. Hence lower long-term inflation at the cost of massive economic swings, worker hardship, and the constant fear of the masses rising up and demanding socialism.
Yep. Look at the period before 1974 and there are plenty of times of high inflation and high deflation (despite what some imagine, high deflation is just as bad if not worse; yeah your money buys more but no one wants to spend it because they’re all waiting for it to be worth even more so the economy tanks). And it was much more volatile, swinging back and forth every couple of years.
And wages & salaries go down too in deflationary times. Things cost less but people make less too, and therefore buy even less.
Isn’t this what you voted for?
The other candidate wasn’t going to verbally abuse the FED to cut rates and get supporters to send FED Governors death threats or work to get them fired.
The other candidate doesn’t know what thev FED is or does. Nor is their support for your death threats.
That is the tragedy of our times: the political menu is so bad. I am told there are 30-percenters on each wing, left and right, but a 40-percent center. Why can’t something reasonable be offered to the 40 percent?
Peels- the two party system, that’s why.
Depth
this is why the guy in NYC will get elected.
People trying to make ends meet watching “big shots” lighting $50 cigars with $100 bills (exaggerated imagery)
The bifurcation of society is being caused by the stock market’s seemingly free money.
This just doesn’t seem right with inflation increasing and unemployment still pretty low.
But what do I know? Full steam ahead, let’s keep the party going!
It’s transitory just give them another 54 consecutive months.
Funny you should say “steam ahead”..
At least according to the movie the guys in the crow’s nest saw the iceberg long before most passengers knew there was a problem. Maybe old Jerome can “smell ice” too. This 3% inflation will disappear quickly in a real recession.
We are in year 5 of recession watch.
Are we heading to “the zero bound” yet again? Sure seems like this thing is on autopilot; no data or crappy data, inflation red hot at 3% on top of a huge step function in CPI post covid, financial conditions looser than loose, cut anyway due to anecdotal employment “feelings” or just because their default position is reckless, and well, this fits.
This unwillingness to accept any pain whatsoever, have any fiscal discipline or make any tough decisions is going to end in a bad place politically. It is already starting; and it will be too late by the time it is seen for what it is.
sorry for the rant
Powell essentially said during the presser that there might not be another rate cut this year — and he said that the minutes will show this discussion. So wait-and-see may start all over again.
The Fed should not be raising or lowering interest rates when key data are unavailable.
It’s nice to see Treasury note and bond yields skyrocketing. The bond market has no confidence in the Fed’s so-called intention to control inflation. As of right now the 10 year is up 77 basis points, 20 year up 59 basis points, and the 30 year is up 55 basis points. The biggest jump is in the 2 year, up a whopping 108 basis points, from 3.494 to 3.602. It’s a big FU to the Fed.
I think that’s up 7.7, 5.9, 5.5, and 10.8 basis points respectively.
Yes. Thanks.
Goodbye sub 6% mortgages, we hardly knew ya. VMBS already reacting strongly.
Mild bond push back? 10y trending up.
Methinks the FED will say 2% in notes but really target 3% to help finance the debt. Some bond traders catching on?
I don’t understand:
– “Available indicators suggest that economic activity has been expanding at a moderate pace.”
And
– “Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments.”
Those two statements don’t seem consistent to me. Is he selling a paradigm in which economic activity can grow while unemployment grows?
Yes, see Amazon (I’m writing these articles for a reason):
https://wolfstreet.com/2025/10/28/even-as-revenues-grow-amazon-to-lay-off-14000-why-ai-corporate-efficiency-walmart-and-others-toot-similar-horn/
When a company cuts jobs at first it cuts the fat but eventually you can cut into muscle. Eventually immigration deportation will be the same, we will be exporting vital consumers. I like what Jay said about immigration controls and equilibrium with the job market for now. The bulls continue to buy the dip, let’s see what happens with China news tomorrow. Maybe, Buy the rumor since April sell the news! If we get news
How is a consumer muscle? I thought you were going to lament deporting experienced tradesmen, but then u went off on a weird tangent…
Because they spend the majority of dollars they make, it’s muscle for growth, we will lose future gdp growth. they also pay into Medicare and social security without legally being able to collect. Time will tell what happen!!. Wealthy may spend big but they grow their wealth more than they spend. The future workers (muscle)being deported are vital for long term growth. Our fertility rates are decreasing, we are not producing enough people to pay our debt in the future. We need people to grow the economy and pay the debt!!! Rolling off mortgage back securities and buying T notes is not going to cover the debt cliff that’s coming. Main Street will be hurting soon from fewer people to do jobs and turn over nearly all of their income back into the economy. Looks like Midcap 400 has set up a roll over top in October. Hard times are coming! Inflation will prevent the Fed from going full bailout. I am admittedly delusional so don’t pay attention to my opinions and insights. I enjoy reading wolf’s thoughts and the data drops he provides.
Breaking >> The President declared 100% tariffs on “Made in USA” labels made in China.
Powell stated that Reserves fell as one of the reasons to stop QT. But it doesn’t appear that Reserves fell much. But the SOFR is about 4.31. Any information where the SRF is at ?
$10 billion.
So reserves and ON RRPs are working together. QT drained ON RRPs essentially zero, from $2.4 trillion a couple of years ago. Reserves are down to $2.9 trillion from $4.2 trillion before QT started. Reserves will continue to shrink after the Fed holds the balance sheet flat as other liabilities grow gradually, which will tighten liquidity further.
Hard to be upset when this decision was virtually 100% guaranteed. Really gets challenging next year unless one of the dual mandates starts trending in a better direction. Seems super unlikely to me. Guessing they put emphasis on employment over inflation.
“…yes, you heard me correctly, we need another thousand-gross cases of your 12oz. cans of ‘Deep Gold’ spray paint, charge it to…hello? Hello?…”.
may we all find a better day.
In retrospect, a hard landing, with the Mag7s fragmented into flaming pieces would be far more preferable, to the current cartel, and ongoing rate cuts, which stimulate the wealth and corruption effects.
We have to juice up the new gambling franchises. Saw an article saying Truth Social (Orwell spinning in his grave) will offer event contracts, apparently to include sports betting. Young unemployed males are a good pool for that, but the low interest rates environment is needed, also to keep juicing AI circular deals for the older stocks punters.
I’m recalling Powell caving to Trump before in a hot economy, and COVID brought in the second side of the one-two punch to being responsibly anchored, landing us in that previous wonderland rates regime of fake money, NFT craze, TINA, etc., and apparently that is the juiced-up climate certain casino-bred parties desire (and are pre-positioned to cash in on). Only when the scene shifts after that does the real rug-pull become apparent, rather viscerally for many.
They abandoned their “2% target.” They have fully admitted it without actually saying it.
“Don’t listen to what they say, watch what they do.”
1% ceiling –> 2% target –> 3% floor
The house is upside down.
Sheer madness to be cutting rates AND ending QT in the face of above target inflation. And for what? To force long rates higher which will hurt employment? The Fed seems to have abandoned both of its mandates…
Jerome “Weimar Boy” Powell still “letting it run hot.” I wonder when Wolf will finally pivot back to “the most reckless FED ever.”
The Fed is stealth accommodating it’s unspoken 3rd mandate: ensure interest expense doesn’t balloon out of control, at least for now.
In addition, it’s unfortunate that the Fed just won’t come out of the closet & admit that the 2% inflation is no longer possible. Whether they raise target to 2.5 or closer to 3% is hard to say.
Waiting to see Wolf’s report on how much treasury & MBS runoff is directed to buying new treasuries. Something tells me it’s going to put the tariff revenue to shame.
The fed can’t come out and say they’ve abandoned the target. Talk about un-anchoring. We’re basically going to tax bond holders to get finances under control because no other option is politically viable (raising revenue or cutting entitlements).
I don’t agree this is an infinitely deep lever like some people though. The floor can absolutely fall out if you try to push it too far. We’re the least dirty shirt in the laundry, but throw enough dirt on and people will rotate to other shirts.
We need policy fixes, not fed fixes.
Actually there is a 3rd mandate…
“promote moderate long term interest rates”
Never mentioned as it is an uncomfortable task for the Fed.
They completely ignored and violated this mandate when they drove long rates to ALL TIME LOWS a few years ago. “Moderate” means not extreme, but they intentionally drove rates to extreme lows.
And their venture into long rates, something the Fed avoided for decades, is a large part of the problem with which we, and the Fed, now deal.
If they seek to avoid what free market pricing would entail (i.e., a recession), they have no choice but to continually stimulate and inflate until the levy breaks.
I don’t have a lot of confidence in the Fed’s interest in getting reported inflation down to 2%, and I believe the figures are fudged and actual inflation is slightly higher. If they keep lowering rates into next year, am planning on liquidating most of my Treasury bills and paying off a chunk of my variable rate mortgage which resets at the end of next year, currently 3.375%.
Howdy Joe. Getting out of debt is the smartest move a person can make. You will no longer worry about Govern ment and what it does to US….We at squirrels anonymous were laughing today , the folks at the FED are a riot.
That’s probably a good idea, given treasury income is taxable and mortgage interest probably isn’t providing you a lot of extra deduction given the higher standard deductions available. The tax treatment seems to favor paying down debt, for most people.
Yes, but the SALT cap has increased significantly this year. Property taxes have increased. We may be able to itemize this year. Last year we hit the 10K cap.
I couldn’t tune into the announcement or Q&A because work was busy… did any of the reporters ask about the OER outlier?
I don’t believe Wolf was invited so that’s a big N O
Most of them probably would ask chat GPT what oer even stands for
A healthy macro economy of a true superpower does not have to hang on every chicken-gut oracle of a Central Shaman.
It is a measure of the US’ true decline in its real economy that so many have been compelled to learn so much about Central Bank operations,
The Fed is a politburo-wannabe.
Yeah one reporter asked and Jpow responded: “OER? I hardly know her!”
Of course, to continue to tighten when financial conditions are the loosest in more than 3 years would not make any sense.
https://www.chicagofed.org/research/data/nfci/current-data
It seems really stupid to keep cutting given inflation above target and irrational exuberance in the stock market. Also, if the Fed keeps cutting they’re not going to have much of a policy response left for the next recession, unless they plan to repeat ZIRP and QE (please no).
The death spiral already started about three spirals ago…
I have predicted five of the last three armageddons.
The national debt is at such a level I dont think anyone really understands it (i.e. what the limit is? what happens when it’s crossed, ect)
Its all just a guess what will happen but Gold and Bitcoin have been telling us more $$$ is going to be printed BUT technically the USA is not Argentina and in NOT supposed to do that. LOL
The stock market is surely priced for that. Maybe they know something we don’t?
“We will be data dependent”
“We will see through the data when appropriate.”
right out of a George Orwell novel
I love how he said they are closer to the 2% inflation if you remove the inflation caused by tariffs. As long as we keep removing what’s causing inflation it will go down eventually.
Which is also a bald faced lie as tariffs have nothing to do with service inflation.
I didn’t see the press conference, but did Powell really blame tariffs? I thought it was pretty clear inflation is in services, not goods. If he said that, then he is a master of deflection and accountability avoidance.
He cannot really say that inflation is in services because that would mean that the Fed would have to HIKE rates. That’s why they denied it until late 2021 too. Services inflation is nasty. They’re going to deny it until they cannot deny it any longer.
Seems like an unnecessary cut to satisfy markets especially when inflation is picking up and employment is historically low. One has to ask “what will it take for the Fed admit this is a good economy and end this incessant fascination interest rates?”.
What’s the problem with cutting rates at the all-timiest high in the stock market? Some will say Powell is “independent” when in reality he is the Banksters pilot and a word that rhymes with itch.
Do you think Powell is a witch? He told us he a big fan of the grateful dead.
The Gov has been losing control of the financial markets ever since Covid and really even after 2008. All we need is a sell off in bonds OR for assets prices to make a crazy spike ($5TT NVDA – lol) for people to completely lose confidence and everyone run for the exits at once
I wouldn’t be surprised to see the bond market break first. Say the 10 year shoots up 50 basis points?? What would THAT do?
What’s the rationale for holding the FED bal sheet at 6.5 trillion? That leaves a lotta money floating around.
Pre-Covid bal sheet was 4.2 trillion.
Not clear what Fed’s objective is: inflation 2%/3% or slower growth.
Can’t wait for Congress to change Fed’s task set.
Recent repo market activity suggests the balance sheet is in equalibrium. Reducing the balance sheet further would undermine the Fed’s control over short term rates.
The Fed could let the balance sheet drop a lot further, but that would require active trading in the repo market with large amounts to keep repo rates in the desired range, the way the Fed used to do it before 2008. Powell previously said that was complicated and awkward, and the rates fluctuated quite a bit back then, and they don’t want to go back to that system (“scarce reserve regime”).
Powell today mentioned the assets to GDP ratio I’ve been talking about a lot over the past 12 months:
Yep. Either GDP is grossly over-estimated or there is still plenty of liquidity sloshing around the global eCONomic plumbing. My bet is on the latter.
I guess another option might be that we are on the precipice of another REPO market failure.
8+ billion mouths to feed, what’s the global DEBT/GDP look like again?
Interesting times.
Mortgage interest rates will now increase as they are keyed off 10 year US Treasuries which soared today to 4.08%.
ROARING 20S: NVIDIA becomes first company to reach $5 trillion valuation!
Worth as much as entire German economy…
Or another way to look at it: rank and file Germans were devalued versus NVDA stock.
Rank and file Germans still have “guaranteed” housing and income. Rank and file Americans do not. Heck now 42mm dont even have food stamps LOL
With rates spiking across the yield curve, maybe it’s time to begin shorting the long bond again. Some inverse ETF’s out there which make it quite easy to do so.
Watch out for the time decay eating into your returns on inverse ETFs.
Long-dated puts on something like TLT is a better way to short the long bond imo.
For fun and entertainment only; not investment advice.
Perhaps this is a reverse ferret maneuver by the Fed. They must have known the effect a rate cut would have on Treasuries at this time. But by increasing the real-world cost of borrowing this will slow the flood of borrowed money into speculative investments and allow unemployment to rise – knowing full well that rising unemployment is the only way to slow services inflation. Or they could just be pissing into the wind.
Any bets on which direction the 10yr yield is heading?
Up, up and up. 30 year fixed mortgage rates finished the day up 14 BP @ 6.27%. The bond markets aren’t buying what the Fed is selling (figuratively speaking).
Yep. IMO America is currently being run by over privileged children who went to university then stumbled into public office because they have no idea how to perform actual constructive work and have inherited wealth. Our leaders are essentially clueless children who never grew up and have no connection to the real world outside their little ideological bubble.
Anybody missed tariff inflation as “transitory”? I must have missed the time, when the last transitory inflation ended, since FED technically never hit its 2.0% mark….
So much for “higher for longer”. They’ll be printing by March of next year. People forgot that Powell is Trump’s 1st term pick and Trump loves money printer. National debt gets inflated away, so win-win.
Hi. Long time listener, first time caller. So economic activity moderately up, job gains not so much, unemployment already very low. On the face of things, a cut doesn’t seem to make sense. Is that a fair assessment?
If so, and we were to remove any wild conspiratorial thinking, what is another rational for the cut? Failing that, what’s the political rational? Thanks all.
The Fed’s rates are still substantially above the rates of inflation. That generally and roughly means that monetary policy is at least somewhat tight.
If the Fed’s rates are below the rates of inflation, that would be loose roughly and generally.
That rationale doesn’t hold water in my opinion. The Fed’s comparison of interest rates to inflation is similar to using a p/e ratio as a sole criteria for investing. It may lead to good long term results, but it can cause you miss stock run ups that can extend over decades.
The goal should be to stop inflation in a year or two, not sometime over the next 20 years. But maybe the Fed doesn’t agree on that point. It’s sure looks that way to me.
We are now in our fourth or fifth year of inflation being 50% or more above target, while unemployment has been very low. The burden is on the Fed to show it is serious about reducing inflation.
If the FED is targeting N-gDp, then the timing for this cut is correct. The rate-of-change in monetary flows, the volume and velocity of money, will fall going forward.
“Irving Fisher’s distributed lag effect is a concept in econometrics that suggests that the effect of a change in a variable is not felt immediately but is distributed over a series of time periods. This idea was first introduced by Fisher in the 1920s and has since become a fundamental tool in the analysis of time series data. ”
Given the size of the fiscal deficits, we don’t want tax receipts to decline, let alone employment levels.
MW: Dow climbs, but Nasdaq and tech stocks pulled lower as Treasury yields push higher
The US dollar is up strongly while precious metals have been sent to the trash heap. Weimar Boy is a genius! MOAR rate cuts!