Let’s go over the rate cut possibilities and the market expectations. Importantly, who is to blame for wildly wrong rate cut projections?
The steeper the upslope, the less likely there will be rate cuts. If it gets too steep, the next move will be hikes.
Note that there are no Fed meetings in August or October. The Fed’s November meeting is on November 7, shortly after the election.
If the Fed is going to cut rates, there are meetings in May (roughly a 0 percent chance), June , roughly a 17 percent chance, and July is 42.7 percent.
If there is no cut by July, there will be at most one cut before the election.
September Spotlight
On December 26, 2023, the market thought the Fed Funds Rate would be 4.17 percent. The Fed’s current rate is a target range of 5.25 percent to 5.50 percent (5.375 percent),
The market expected 5 quarter point cuts. It now expects one.
Looking Ahead Further
Looking ahead to December, the market does not expect another full point cut.
One has to look all the way out to March of 2025 before the weighted average projection drops to 4.81 percent.
That amounts to 0.565 percentage points (5.375 – 4.81), barely above two quarter-point moves.
Projections Will Be Wrong
These are market projections. The odds it plays out exactly this way are close to zero.
There will be more or less cuts, or there could even be hikes.
Perhaps March of 2025 is as expected, but the path will not be the one currently applied.
Are Rates High Enough?
Bloomberg notes Fed Resets Clock on Interest-Rate Cuts
A string of disappointing inflation data has forced the Federal Reserve to reset the clock on its first interest-rate cut and re-evaluate the trajectory of price growth.
Chair Jerome Powell cemented that message this week when he said it’s likely going to take “longer than expected” to gain the confidence needed to lower rates, dashing hopes for more than two cuts in 2024. Some worry there may be none at all.
“This is confirmation that the Fed’s willing to wait it out,” said Diane Swonk, chief economist at KPMG LLP. “There’s concern of how little it took to stimulate the economy, that there’s still a lot of demand.”
Economists now expect two cuts this year, down from three forecast in March, according to the median estimate in a Bloomberg survey. [Mish Comment: the market does not expect two full cuts until March of 2025 as noted below. But I do not doubt economists expect more.]
“We started worrying about the financial conditions easing again and the potential for the progress on the inflation to stall at an elevated rate, and unfortunately that’s what it’s looking like is happening,” said Marc Giannoni, chief US economist at Barclays Plc and a former Fed economist.
“Why are they telling us they are going to cut rates when we have inflation and a good economy?” said Michael Bordo, an economics professor at Rutgers University.
Hoot of the Day
Claudia Sahm, a former senior Fed economist, blames markets, not Powell. “The degree of motivated listening is mind blowing,” said Sahm, chief economist at New Century Advisors LLC.
Motivated Listening
Yes indeed we have motivated listening, but it’s from the Fed and Sahm herself!
Congrats to Sahm for being in my Hoot of the Day twice this year.
Flashback January 24, 2024: Hoot of the Day, What is the Fed Waiting On?
Should the Fed cut now? That is what former Fed economist Claudia Sahm says.
“What exactly is the Fed waiting on? Cut.”
“The consensus is that core inflation gets a 2-handle on Friday. Total has had it for a while. Powell has repeatedly said that the Fed would not wait until 2% to cut. Hello???”
Hello Claudia!
Perhaps a few questions will answer your question.
- How about data?
- Is the Fed supposed to act on consensus opinion?
- Is approaching the target good enough?
- Core only?
- With housing prices and the stock market blistering?
- Doesn’t anyone ever look at asset bubbles?
- Hello???
Sahm responded by blocking me.
Now she blames the market for listening to the Fed and to her!
I have many times commented the Fed is one of the problems by trying to control market expectations when it proven totally clueless about where things are headed.
“The degree of motivated listening is mind blowing,” said Sahm.
Yes it is. And what a hoot.
I’ve posted this before: How many of you (after the Fed slashed rates in 2009) correctly predicted the following: Rates would stay at the zero bound for over a decade. During that decade of Zero rates, the Fed tried several times to raise rates but the Stonk Market retaliated every time and puked rates back to Zero. During the latter part of that decade; rates (actually went -negative). WTF!? Also at the end of that utterly incompetent Fed monetary policy we had a Covid virus wherein the Fed slashed rates again and also flew helicopters over the USA and threw vast amounts of $money to everyone to sit locked up in their homes and do nothing. The PPP loan fraud during this incompetent period is in the $billions. …..hmmm housing demand also spiked during this insanity. ….wonder why?! Why did home prices lift off like a rocket ship during Covid!? Did all of you out there w/ your vast amount of $millions in $cash (stashed under your mattress) all of a sudden decide to move? Where the hell did you come up with this money? I would like to know? It is unbelievable that anyone would think the Fed is actually going to cut rates in the foreseeable future. Gold, Bitcoin, and the Market is at all time highs. The Stonk Market, (which usually is a forward looking indicator) has finally started to catch on. It’s amazing to me that it is now a lagging indicator. I will restate the insanity of that prior period: Rates actually went NEGATIVE at one point in time. Will anyone be surprised (at our current state) if rates get to 6-8%+? It’s a sad state for anyone buying a home nowadays if you think that a 30 year mortgage loan should be 2-4%. Those rates will go down in history as being an absolute anomaly. Everyone wants home prices to drop or rates to drop. Rates aren’t going down anytime soon due to the .gov spending/Federal Reserve policies. You want housing prices to go down? As a start, Ban ABNB (Air BnB)/VRBO and the likes in every residential neighborhood in the USA. This will force supply to increase and reduce the price for homes. There’s a reason why we have different zoning laws between residential and commercial. How many of you would like a Costco/Home Depot/Gas station/Hilton/Marriott, etc. built next to you in your residential neighborhood? But yet we allow our neighbor’s homes to function as a hotel next to us? This is complete garbage. This would be (at least) a start in freeing up housing supply.
Govt is the biggest borrower. Who believes that raising rates will curb Govt borrowing/spending? Everything the Govt and Fed are doing is nothing but a game of 3-card Monty until they can eliminate cash and force everyone into digital currencies to track, tax, and confiscate everything they think they need. Don’t you know the problem is the Govt just doesn’t have enough money?
There will probably be one rate cut – in July. After that, the Fed will keep uttering some nonsense about “monitoring the situation” and other such crap until the end of the year.
But… if the asset markets start going down big time i.e., a 20%+ decline in the S&P 500 from its peak, then there will be a flurry of cuts, accompanied by lots of QE. But it likely won’t save the markets – just like it didn’t in 2001-03, 2007-08 and 2019-20.
Wow. Had a few moments this morning to check out this thread. A lot of comments from folks who think they know more about economics than everyone else. Lol!
Then they debate each other with ludicrous statements that prove they know f*ck all.
And not a single comment about how they are using their “special knowledge” to profit.
What’s the point of having your perceived “knowledge” if you waste it in useless debate and never actually apply it?
Well. Time for my run. Can’t waste anymore time here.
Some of us already made our money or locked in our income stream, Papa. Dont get upset. Keep running. 😉
Your completely lost.
Insiders were using their special knowledge to dump stock. Outsiders kept driving the market to new highs. When Powell started raising rates, Denninger said that he was going to raise rates a lot farther than people expected. Considering that the government is spending like drunken sailors, he said there wouldn’t any 5 or 6 cuts this year and has said if they don’t cut it out, there won’t be any cuts. Amazing how the market took an express elevator down this week. What suddenly changed their mind?
Reality ?😂
Yeah, I do know more than any economist.
The rate-of-change in the proxy for real-gdp (monetary flows MVt) peaks in July. The rate change in the proxy for inflation (monetary flows MVt) peaks in July. Therefore it should be obvious: interest rates peak in July.
Because interest rates top in July, the exchange value of the dollar should resume its decline. A very good time to buy gold!
The “Holy Grail” has no disclaimer.
posted by flow5 at 7:50 AM on 06/29/07
Thus, my prediction for the bottom in oil was:
“Lags are constants but “K” is not. K is the reciprocal of Vt. The bottom isn’t Dec. but Jan. (like last year)”
Sep 24, 2015. 11:56 AM
Then BuB, believing that money is neutral (not robust), ignored the rate-of-change in money flows (proxy for real-output), to fall, surgically sharp, during the 4th qtr. of 2008:
POSTED: Dec 13 2007 06:55 PM |
The Commerce Department said retail sales in Oct 2007 increased by 1.2% over Oct 2006, & up a huge 6.3% from Nov 2006.
10/1/2007,,,,,,,-0.47 * temporary bottom
11/1/2007,,,,,,, 0.14
12/1/2007,,,,,,, 0.44
01/1/2008,,,,,,, 0.59
02/1/2008,,,,,,, 0.45
03/1/2008,,,,,,, 0.06
04/1/2008,,,,,,, 0.04
05/1/2008,,,,,,, 0.09
06/1/2008,,,,,,, 0.20
07/1/2008,,,,,,, 0.32
08/1/2008,,,,,,, 0.15
09/1/2008,,,,,,, 0.00
10/1/2008,,,,,, -0.20 * possible recession
11/1/2008,,,,,, -0.10 * possible recession
12/1/2008,,,,,,, 0.10 * possible recession
RoC trajectory as predicted.
This isn’t rocket science. It is grade school mechanics.
The debate about inflation is a complete red herring, it’s all about the bond market.
She blocked you??? Too bad I don’t use social media otherwise I’d head over to X and ridicule her till she blocked me too
If Powell doesn’t play politics there will be NO rate cuts in 2024. I expect him to raise rates before the end of the year as inflation is going to continue to increase.
Actually — cutting rates would not help Biden… cuz all it would do is cause inflation to rage even higher. Already pissed off voters would abandon him.
Red Lobster to file bankruptcy as soon as end of month(April)
Over-priced; terrible quality; Poor service. OLD SCHOOL.
If they want Trump to win just keep rates steady
even emptying SPR won’t move gas prices $5 for summer
seems everyone is flush with cash – restaurants FULL – well good ones
Cuts? See all of your previous posts regarding inflation. That Genie ain’t back in the bottle and asset holders/homeowners want that fictional and insanely high number to persist. We will continue being unhappy so long as everything we buy, insure, maintain, pay taxes on, taxes themselves, etc continues to rise and far north of the silly manipulated number they report.
I’ve gone back on a few orders of products I purchase in my “market basket” and, since 2021 those values are so far north of the official number it’s ludicrous. I realize as long as folks feel like they have a permanent income source they will continue to spend. And as long as companies continue to find buyers they’ll continue to produce AND price things in ways to cover their also-rising costs. With an unchecked government spending spigot, this can go on a bit longer but when the music stops things will get “interesting”.
If they cut now it would be of course the typical asymmetric response but it will be a continuation of the policy error where they let it burn hot for 18 months of transitory BUT they cut far short of taming inflation. I believe they have to raise rates to shock the system like brakes on a car, coasting down this hill will lead to more unhappiness and tension that may spillover to something they can no longer control.
Japan is a great example of a nation that did little in terms of their markets for 30 years but their inflation was flat the entire time and their citizens were happy. People don’t like change and uncertainty in the price of everything introduces unhappiness across the spectrum. Every individual transaction has that uncertain feel to it at the moment. The Fed is so far out of touch with “price stability” and cutting would just drive that point home.
Home price appreciation and all that it involves (your previous post on insurance, maintenance, taxes) has created a huge distortion that can only resolve lower.
They really stepped in it this time by keeping them lower for too long and ignoring the fiscal fire hose.
You really don’t understand Japan… deflation is a curse for young people there.
Deflation in the birth rate for SURE. Italy is the same.
Maybe 1 as the 54 month cycle in interest rates bottoms this fall.
You can’t believe the money stock numbers. The influx of Keynesian economists at the FED began in the early 1960’s. They promulgated the Gurley-Shaw thesis. Thus, the most dominant economic predator, the American Bankers’ Association became all powerful. It was a conspiracy. The ABA literally paid some of the most prominent economists of the time not to debate Reg. Q ceilings’ issues.
The FED doesn’t know a bank from a nonbank. So, it can’t count money. Some of the correspondent balances, interbank demand deposits, are also mis-classified.
We can, if we want, go back to the days when a savings account was just that – and not an adjunct to our checking accounts (which impounded savings).
If you wanted to destroy the economy, you’d do exactly as Biden is doing, increase the Federal deficit. The academic society sure doesn’t know what to do.
The banks need nationalized. And reserve requirements and reserve ratios need to be reimposed. Issuing a new currency isn’t going to cut it.
The error in economics is that banks lend deposits. No, deposits are the result of lending/investing. All bank-held savings are lost to both consumption and investment. It was the cause of secular stagnation (predicted in 1961). Credit creation is a system’s process, not an individual bank’s process.
Regulation Q ceilings need to be reimposed on the banks, like in 1933. “From 1933 until 1986 it also imposed maximum rates of interest on various other types of bank deposits”. Prior to 1966 the nonbanks were unregulated as they should be. The NBFIs are the DFI’s customers.
If Powell didn’t eliminate required reserves, you could tell exactly when rates would fall. Required reserves represented the “monetary base”. An increase in the currency component was contractionary.
It’s astonishing how stupid economists are.
You want to nationaliize banks and put everything under the control of academics who you bluntly stated (one sentence earlier) are clueless?
To paraphrase Albert Einstein: you cannot solve a problem using the stupid think that created it.
Government incompetence caused the mess. Its asinine to suggest corrupt bureaucrats (under the guidance of academics) can fix the problems they willfully and deliberately created.
When you look at data going back into the 1800s, you see a huge amount of volatility, and frequent recessions. The “guiding hand” idea did appear to stablise things, but only through the emergence of credit markets that generate prices via risk assessment.
Yes but without the trillion dollar increases every 100 days the US economy would collapse (along with it the global economy).
i.e. We are f789ed. There is no way out.
What cannot continue – will stop – and implode
There is only 1 way out, otherwise carnage.
And the FRB-STL also has the right idea:
https://files.stlouisfed.org/files/htdocs/publications/review/2023/06/02/fiscal-dominance-and-the-return-of-zero-interest-bank-reserve-requirements.pdf
This is the way out https://www.headsupster.com/forumthread?shortId=220
Just set the damn fed rate to the 2yr treasury and let the market decide what it should be. So sick of market expectations of what Powell is going to do.
The Federal Reserve should only be the lender of last result. Any company that has to use them for that purpose should go through an orderly restructuring minus the leadership and board who bankrupted the company.
(Presuming that the Fed will allow any big bank to fail.
You have heard of “Too Big to Fail”?
The Fed and the government are so afraid of “the depression” that “will result” if banks are allowed to fail and depositors lose their money.
So we get to find out how an economy can fail in the course of stupid helicopter drops of money and the resulting (hyper-)inflation.
Better cut soon(and a lot) before all that future campaign contribution money gets vaporized in the market.
None, right? Why cut if the economy is as strong as they say and the consumer is as resilient as they say.
Some “experts” are also calling today’s rates normal.
No landing, no cuts. Right?
True analysis, Thetenyear. Unfortunately, we are on the brink of “Fiscal dominance”, where the government’s spending commitments and inability to pay interest on their borrowing means Fed lender of last resort must loan to the government (aka monetize the debt) and inflation must happen.
Per Stein’s Law, that problem will have to be faced, although the solution to it is horrible.
???
ZERO.
the appropriate question is whether the Fed will RAISE rates before EOY.
“Higher For Longer”
Fed/Powell have been extraordinarily consistent w/ their rhetoric & messaging.
Anyone expecting rate cuts has been listening to wrong sources.
If data dependent, zero cuts.
If a war in the Middle East, so $200 oil, rate hikes.
If banks fail, cuts and bailouts as far as the eye can see.
Powell is intent on finding reasons to decrease FED interest rates NOT because he is concerned with inflation but because the banks are complaining that high interest rates are cutting into their profits!
——-
Big banks warn of sting from higher rates
Nathan Bomey
The benefits of high interest rates are fading for the nation’s biggest banks as depositors increasingly moved funds to higher-interest-bearing accounts last quarter.
Why it matters: A trio of banks turned in strong first quarter earnings Friday, but warned that the profit growth they’ve been enjoying from higher rates is starting to fade.
Between the lines: Wells Fargo said today its net interest income (NII) — the amount it earns from lending vs what it pays to depositors — fell 8% in the first quarter, compared with a year earlier, amid “customer migration to higher yielding deposit products.”
…
https://www.axios.com/2024/04/12/j-p-mogran-chase-q1-earnings-interest-rates
this notion that Powell cares what banks want is delusional.
Powell has already COMMITTED to facilitating regional bank failures + consolidation. Powell has clearly signaled that he is not interested in avoiding bank failures… quite the opposite.
What hounddog vigilante said about Powell… and:
The banks that failed in 2008 are still bankrupt. The can was kicked down the road, nothing was fixed, those banks were and still are insolvent.
The corrupt efforts of Bernanke and Yellen solved nothing; manipulated interest rates destroyed capital and propped up zombie banks that should have been pushed into a ‘controlled collapse’ (protect depositors, but let badly managed banks fail)…. Wells Fargo is one such poorly run bank (plenty of others).
Powell came from the private sector, unlike the academic losers Bernanke and Yellen. Powell wants private enterprise to work again, as do his ultimate backers (not the criminals in Washington, who are broke).
The failures that should have happened in 2008-2010 are still going to happen, and there is nothing the Fed can, or should, do to stop it. Protect depositors up to $250K as was promised, but let the bad banks fail.
The problem with this is that the Federal government is broke, and it will be forced to slash spending and slash headcount. Uncle Sam is either going to be like IBM (massive reduction in size, headcount and scope) or it will be like the steel companies (total collapse).
re: “Protect depositors up to $250K as was promised, but let the bad banks fail”
FDIC insurance should fall back to 50K. Banks don’t lend deposits. Savings flowing through the nonbanks never leave the payment’s system.
It won’t matter. Nothing is going to save Biden. His mental scoliosis can’t be hidden and people have had enough of his failures.
The Fed will move to yield curve control. This will require a disguised QE. The Fed and the government need rates lower. They will manipulate the inflation data to declare success. I’ll guess 1 cut sometime this summer and a dovish speech. Got to keep markets up and people expecting lower rates as the election approaches.
Powell has never indicated that he cares about the regional banks or markets’ tantrums.
Attempts at manipulation only lead to whack-a-mole scenarios – he can’t defy maths.
Rate cuts in a debt driven inflationary environment !? Sure!… Well, who still needs ”rocket scientists these days….unless for moonlandings that NEVER took place so far , of course ….
If they say there will soon be a Soyuz launch with Chalie Michel, the Barbie and Joseph Borrell on board to Mars, will you believe it?
Zero. Trump will take them back to zero if he gets in. Biden wants the CD interest to continue to the older voters he needs to buy a second term (why do you think they are at 4% now?) After the election, both would do zero. Neither will care about the inflationary effects.
“Trump will take them back to zero if he gets in.”
What? I didn’t know we owe our interest rates to the executive branch. Hmmm, I must of missed that in econ class.
Time for an education. Trump 101: anyone he appoints will do whatever he says to do (see: Supreme court justices & abortion policy). Otherwise, he doesnt need them. He wants zero, he gets zero.
Agree, Trump is just like Erdogan. Erdogan thinks of himself as a great economist and decreed low interest rates to lower Turkish inflation… and now Erdogan is wondering why inflation is 68 percent.
TDS bot 2
Go look at FFR from 2008-2020. Obama had zero throughout, moving off zero right before Trump took office. Trump wanted them lower a few times in his term and that didn’t happen… until covid in his final year. Biden had zero for far too many months as the Fed dithered with the term Transitory. So zero seems to be the status quo for the dems.
You have a sickness. For most of Trump’s term the Deep State and bureaucracy, which falls under the Executive, fought against the President, the furthest thing from your claim that his appointees and executive branch just goes along.
As for abortion the court turned it back over to the states, don’t pretend they banned it. They got the ruling correct and if you need one Minnesota’s governor proclaims they are open for business. Those same justices have fought against states dealing with illegal immigration so don’t proclaim the justices are doing Trump’s bidding. Smh.
Trump’s 5000 appointees all did exactly what he told them to do — and if they screwed up and crossed him, they never did it again or they resigned. Next time, which is possible — he might just win again, the loyalty oath will be even deeper. He wont make the same mistake again. They will all be brownshirts. And Trump promised to gut Roe, he named three justices who all voted to kill it .. as ordered.
TDS bot 1
why cut when Congress and the White House are doing everything possible to increase inflation
My feeling is 2024 would rhyme with 2008. Not sure what gets it there other than yield curve will have been inverted for well over 100 weeks or 2 years and peak fed funds in the fastest biggest hikes at least since Volcker in an economy that now has maybe 1% potential output
But of course the Fed Gov has decided it is going to spend just insane amounts like a trillion dollars to get 250 billion if GDP growth as we mistakenly include government spending in output calculations. And the traitorous GOP controlled (not really GOP) House just goes along with the insanity
So it appears all is well
Why then are consumer loan delinquencies at levels approaching the GFC? Because corps have NOT yet had to refinance anything. But that is changing this year and for the next 2 years
So it all depends on when the SHTF
If before the election, which is likely to ALSO be a SHTF event, then 1 or 2 cuts. Otherwise none
The bond markets aren’t there yet… the yield curve inversion is still there, not come out of it yet. It has to get up above zero to follow the historical pattern, and then rate cuts follow and unemployment… what is different this time, is that it’s not uninverting… that’s a bit unsual.
The inversion is the deepest and longest since the 1980. Most measure that as 2 inversions, but I think it was really one very long one that uninverted for a short period in the middle. So in my view we havent reached the 1980 inversion length yet. And not quite the depth either
It will play out like all have played out. 2 year and short yields will plummet and the Fed will follow.
If in fact we do not get any economic downturn even with this inversion then something MAJOR has changed in the world that I have not yet seen identified
Bang point coming up might be that thing
Emergency meeting NOW
Raise FFR to 7.5%
Commit to taking the massively abused and unauthorized FED balance sheet to ZERO by 4Q2025
Announce the dissolution of the FED trading desk (plunge protection team)
Announce there will be NO Fed speakers or meeting notes until after the election
Sahm and the rest of the mouth drooling bubble pumpers love free/cheap money and frankenstein money tactics to pump their greedy bags higher NO MATTER WHAT
Raising Fed Funds to 7.5% in a 1% economy is not a very good idea.
OK with ending the Fed. Let the market set the overnight rate. Fed is a VERY anachronistic Price Control Board that is basically the last one still standing. All the others created last century have ceased to exist.
If the market decides 7.5% is right then so be it. My guess though is it will be more like 4 to 5% and dropping.later this year.
The FED is NEVER going away. I wish you people would stop talking this stupidity.
Concur.
They can’t raise the price to 7.5% anyway, the market will just carry on pricing at <5% and buyers will buy that – you can’t force buyers to buy higher, especially when there are lower prices, it doesn’t work like that.
More to the point, governments who hold lots of USTs (e.g.: in Asia) are selling them off to keep their forex rates with the USD where they want them.
Cuts, maybe one. Moar cuts, we need recession to hoover up the stickiness and crush demand. But only happens if Uncle Sam sobers up and leaves the casino.Then its tumbling dice.
“we need recession to hoover up the stickiness and crush demand”
Here’s a man that has more than a modicum of understanding of economics. You’re spot on Patrick.
The powers-that-be know this, but the general public is too much in the here-now (or, should I say, ignorant) to understand the reality of the situation, and our Congress Critters are in chronic campaign mode, so they won’t tell them otherwise. Unless AOC and her ilk, who are just plain ignorant-about-all-things (except mixing cocktails).