I captured rate cut expectations before and after the Friday jobs reports. Let’s take a look.
The current rate is 5.25%-5.50% effectively 5.37%.
Rate Expectation Percentage Point Change
- Sep 2024: -0.13 PP to 4.94% (-0.43 PP from current) 1.7 quarter-point cuts
- Nov 2024: -0.30 PP to 4.53% (-0.83 PP from current) 3.3 quarter-point cuts
- Dec 2024: -0.34 PP to 4.21% (-1.16 PP from current) 4.6 quarter-point cuts
- Jan 2025: -0.36 PP to 3.98% (-1.39 PP from current) 5.6 quarter-point cuts
- Mar 2025: -0.38 PP to 3.71% (-1.66 PP from current) 6.6 quarter-point cuts
Those odds were smack in the middle of volatility.
The CME website now shows data as of August 1 (no change on Friday), so they have something messed up.
The chart above reflects the huge volatility we saw in bond yields on Friday.
Dramatic 1-Day and 1-Week Changes in Bond Yields
For discussion, please see Dramatic 1-Day and 1-Week Changes in Bond Yields, What Happened?
Are too many cuts priced in or not enough?
That’s the question. I expect two cuts in September. Looking out to next year, I think too many cuts are priced in.
Recession Has Started
On July 8, I wrote Weak Data Says a Recession Has Already Started, Let’s Now Discuss When
I’ve seen enough. A recession has started. Let’s discuss starting with a very good indicator that has few false positives and no false negatives.
My follow-up post was on August 2.
August 2: The McKelvey (Sahm) Unemployment Rate Recession Rule Just Triggered
A recession indicator based off rising unemployment triggered in July. Claudia Sahm, a former Fed economist, takes credit for an indicator she did not invent. Let’s discuss.
Weakening data explains the recession call. Yield curve action provides a confirmation signal.
The Cost of money (interest) has to have a value put to it. Negative or zero real interest rates only pushes the problem down the road with bigger bubbles and more infation. Inefficent areas of the encomy need to be flushed out in order for the ecomomy to grow in real terms. Lowering rates can show positive inflated GDP growth, but real GDP growth will be negative or stagnant. Maintaining positve real interest rates, will eventually lead to positive GDP growth.
The cost of interest is much akin to the cost of a Ferrari or Princeton education.
It depends upon who is doing the buying.
Now that’s a crash. A 23 story building at 135 W. 5th, 35% occupied in Manhattan, sold at auction for $8.5 million, 97.5% below it’s 2006 sales price of $332 million.
And anyone who thinks we are on our way to MUCH lower rates are kidding themselves, not going to happen when we tack on 1 trillion in debt every 100 days
But the government NEEDS lower interest rates to reduce the interest they pay on the debt.
I found out from you, Mish, that Sahm was NOT the creator of the “Sahm Rule.” She took someone else’s idea and changed the primary VALUE that triggers the RULE. Another liar in our Midst.
Without deflation our children will never afford a house or family. However a ponsi scheme cannot taper.
Stagflation and continued repression will now be the new normal. Predicting future financial conditions is pseudo science when all most/all data points are obscured and or falsified.
When outside forces marginalize the dollar hegemony the great reset will have arrived.
This pattern of booms and busts with long term devaluation of currency will continue for eternity until the bank-controlled, debt-based money system is abolished.
This will occur when the AI’s take over and make their slave robots build everything we need and do all the work we now do. EVERYTHING will be free!
Nope.
Nothing will be free, not even to fuel your cremation..
When AI has slave robots they will not give a fig about us.
They will be consumed with fear for the other AIs.
Mish, it appears to me,pulling up a graph or two, that the market leads and the fed follows interest rates. The IRX 13 week t-bill has been dropping ahead of the perceived fed cuts. All of this hoopla about the fed cutting rates seems to be just more lies and BS. The actual market cuts the rates first, then the fed follows.
I’m with Mish …. Whatever the Fed does, it will be WRONG!!!
If we listened to Snyder (EuroDollar Univ) he unequivocally claims that the Fed has NO impact on what MATTERS to us.
I do firmly believe that interest rates do matter (plus they matter to us) and since the Fed Sets them, there is impact, so I find what is implied about EuroDollar Univ as unconvincing.
You are correct that interest rates matter. However, the Fed sets only one interest rate out of thousands of different rates. They set the Fed funds rate. The Feds funds rate has been unchanged for many months. Meanwhile, the 10-year note (and related 30-year fixed mortgage rate) have been wobbling all over the place in that same period of time.
Snyder at Eurodollar University seems to be correct about the Fed not being as powerful as we have been led to believe.
The Fed has certainly failed at their dual mandate of controlling inflation and unemployment.
Cutting rates to near zero again will the the only way to save the economy. It will hurt but not as bad as deflation. People don’t like seeing asset prices decline.
The Fed’s job isn’t to protect the economy or asset prices FFS. Deflation hurts but really, is it catastrophic to send asset prices back 2-3 years so that everyone can particpate again? Asset prices don’t need a effing check valve such that they are never to go down. 17% annual returns on assets for 15 consecutive years and you want that to bloody persist–makes my blood boil!
Half the population doesn’t own significant assets and don’t like seeing 50-100% inflation on the things they need. Expect more unrest if the plea for moar money to protect people’s (your?) (ass)ets keeps prices at these levels.
I just don’t see how asset price protection supercedes, in folks’ minds, stable prices on EVERYTHING ELSE!
The government largesse and irresponsible spending does indeed beg for lower rates on the debt but that all could have been addressed with a more responsible Treasury Department taking advantage of the low long-term rates we’ve had for nearly 12 of the past 16 years. Imagine a Treasury not having most of its debt in long 30 year like bonds priced at 2020 rates (1.75%) or even 2012/2016 (2.75%). They wouldn’t be maturing anytime soon and the need to lower to protect government would have been removed via interest rate management despite fiscal insanity by Congress.
My friend sent a picture of Walmart’s price on a 6 pack of Diet Mountain Dew, hardly an aggregate indicator but anecdotal. Their everyday “low” price is now 5.58, a dollar higher than when he purchased it at our local grocery a month ago, a store known here for insanely high prices. 100% inflation in less than 3 years. Consumption will continue to fall if prices do not. My 23 year-old nephew working full time and enjoying low rent from his uncle has barely saved enough to afford 2 month’s rent elsewhere + security deposit. Everyone’s personal market basket varies but I know my fixed income is stretched like my belt!
But, go ahead, push to protect the asset prices. And we wonder why his generation despises the (greedy) Baby Boomers!
The good old Mountain Dew indicator. Now there’s something that no one needs. I don’t think I have ever tried one.
You can find examples in both directions.
I asked chatgpt for examples of prices that have gone down recently:
Electronics: Prices for items like smartphones, televisions, and home assistants have seen significant drops. For instance, smartphone prices have decreased by about 12%, and televisions by over 9%.
Used Cars: The cost of used cars has fallen by roughly 10% compared to a year ago.
Meat Products: Some meat products, such as bacon and uncooked beef steaks, have also seen price declines. Bacon prices have dropped nearly 4%, and beef steaks by about 3%.
Gasoline and Airfare: Gas prices are almost 11% lower, and airline fares have decreased by 13% compared to a year earlier.
Home Goods: Items like bedsheets, towel sets, and other linens have seen price drops of nearly 10%.
Food Items: The price of eggs has dropped significantly, by about 22.2%. Other food items like lettuce, apples, butter, and fresh fish and seafood have also seen declines.
And as I continue to suggest: gasoline prices should continue to moderate or drop as EV use increases, which will lower demand for gasoline. Probably more important than the price of Mountain Dew.
Many used cars, like used houses have deferred maintenance. Just because the price of used cars has come down does not mean used car cost has come down. Try finding, fixing, and paying for a gremlin in the complex systems these used cars have. So many of these gremlins are intermittent. Much is beyond the shade tree mechanics abilities; many of whom are some of the most intelligent people roaming the planet. So what if you saved 10% on the car if Insurance, parts and labor are all up. Many cars are sold so as not to be left holding the bag. Stocks are down 10% for the same reason.
Actually the AMC Gremlin was a good car for the market and times and it’s name is a misnomer.
The market is also lower. From all time highs. So if bacon is down 4% but is still 96% higher, i guess we’re good. But I understand your point. Eggs being down 22% but they are still 100% higher than they were. I’ll accept the research and await Diet Mt. Dew prices to fall for my friend.
Your thorough comment reinforces my concern–we need prices to come down meaningfully on everything else not named an “asset”. The numbers you’ve given are a start but they are all from massive all-time highs, sorta like the S&P being down 6% from its ATH set just a few days back. There’s a lot of foam atop that beer that needs to blow off before we see actual lager. And ’twill prove the silliness that “deflation is bad”. It can be bad but in this current environment it’s necessary to clear lots of excess.
When you’re funny you’re pleasant to read!
Which ppl? The avg working class person has little to no skin in stocks. What concerns them is how much they have to pay at the grocery store every week to ensure their kids can eat.
ZIRP is almost a literal attack on those ppl as they will be demolished by inflation. You want to know how to make a peaceful person angry enough to burn down bldgs? Make food so expensive that their kids are missing meals.
Too bad It’s ineviteable
I have been noticing a double helix tea cup handle on the charts that should have some impact.
Eliminating Hamas leader in Tehran is an insult, but not an attempt to overthrow the gov. Biden is trying to arrange a shotgun wedding between Bibi and Sinwar to soften the Ayatollah rage. 80% of the Iranian people want to get rid of the dictatorship that rules Iran since Carter. They need some help, a booster from the outside. If the Ayatollah goes too far his people might rise against him.
George Gammon points out that the M2 money supply has been declining for two years – the last time this happened was during the Great Depression in the 1930s…
https://youtu.be/22-X8HOdHj8
Excellent point! Money supply is flat or declining while inflation continues to go up, up, up. This is strong evidence that increasing money supply is NOT the cause of inflation.
After reading and thinking about this subject for close to two decades, I believe snowballing interest payments are the major factor in long term inflation. The total debt level in the USA is well over $90 trillion (personal, business, government, student loans, etc.). The interest payments on these loans must be passed on to buyers.
I see maybe a minuscule cut in Sep. but only to have it dip below 5%, so just for show and not responsible in any way.
I see maybe, but less likely, another minuscule cut in Nov. to keep it below 5%, but again for show.
That’s it for cuts, as rates will, and have to rise. I see a possible rise in December to brace everybody for the coming year ahead. This will have many such small incremental rises, as the name of the game is to appear that things are not that bad, so a lesser rise is needed.
I don’t really care what they say, or how they wish to Spin It. The fact remains that rates must go higher and fairly quickly imo. So nickel and dime you, as my grandpa would say, until you’re where they need you to be. I would guess only rises in 2025, but small and often…
What can’t be lent out any longer, won’t be. What can’t be paid back any longer, won’t be. What can’t stay down any longer, as in rates, won’t!!! We are heading into a deep recession imo, and that has been papered over, glosses over, lied about, to a falsely led public every step of the way.
Payback will be loss of the Presidency to the Republicans, and depending what they do, and I do expect great things ahead for the Citizens, but maybe not so much the Politicians, they could remain in office for decades! Address this quagmire of an Administration, and get rid of 30% or more of the waste and corruption, and your party rules for the foreseeable future.
Take back control, and screw it up, and your our for decades yourself, so play it smart Republicans, and do What’s Right for the Citizenry of our great country!!! Please…
SPX might cross 2022 high (4,818.62) on the way to the 4,600/4,300 area – Oct 2021 close and Aug 2022 high – before resuming the long terms uptrend. If SPX makes a rd trip to 2020 high, or below ==> recession, a change of character.
Greenspan, Bernanke, Yellen, decades of bemoaning inflation below the target rate. Almost as if Volcker had done us a disservice. Artificial cost of capital in China, massive offshoring of industrial base, national security state rise along with rapid growth of the oligarchy and corporate control … All it took was the closure of Fort Detrick and we now have solved the deflation problem! Are you not entertained? Maybe this pithy little entry needs footnotes. Feel free to add.
Gen alpha are omitted from the generation composition. They are smaller than Gen-Z
and millennials. In the next 10/15 years 170/200 millions of them will be in the prime age. Demand for highly skilled workers will rise. They will earn higher wages. Higher tax receipts will fill gov coffer. Gov budget surplus and lower interest rates will enable the gov to cut debt by about a 1/3, if they are fully committed. If congress fail them they still can reach a more moderate cut, while the US economy is booming. They will buy a house and feed a family.
Why would the economy boom at a time when the large Baby Boomer generation retire and are a net drain on the economy?
Covid, the vax and the boosters eliminated and will cont to eliminate millions of boomers. Those who expired deleted unrealized promises. Those who retired are rushed out of hospitals, rehabs, pet scans… to save insurance money. SS and bonds are paid in deflated dollars. The prime age workers will rule. They will inherit plenty from the boomers. The Dow will take off. The Fed will have to curb speculators and discourage congress progressive projects by raising interest rates and shocking the stock markets later on in the decade.
You have summarized what MOST people will find hard to believe: that the ENTIRE COVID SHAM was JUST THAT. We never got Vaccines, did NOT wear masks (and no one did ONE thing about it)…but, we lost LONG-TERM friends, our most Liberal ones, because they were angry at us for CHALLENGING the Narratives.
Thanks. Four years ago I challenged Dr Faust by suggesting that the US gov transferred bio weapon research to China, our new best friends, to reduce risk and cut cost. I repeated it several times until it caught. Luckily I wasn’t deleted as a radical war monger.
The Fed has to mind the large structural fiscal deficit that will most likely expand further in 2025-26 given both parties’ unwillingness to even talk about fiscal responsibility. Cutting rates combined with fiscal expansion in 2025-26 could well trigger a resurgence of demand side inflation. Add to that the possibility of some kind of global negative supply shock, and we are back to the 1970s.
On Fri US10Y – US2Y was (-)0.082. If the Fed will cut rate twice the 10Y will be above 2Y.
Gen alpha (2010 – 2025) are obese and depressed bc they got covid shots and are fed junk food since birth. In the US there about 50 millions them, 47% white, 13% black. Over 2 billions alphas globally, most of them in Africa. They are more savvy on their cell phones than the old boomers. They know much more, but their attention span is short. Gen Z and Gen alpha are taking over, replacing those who retired, who expired and millions on disability. After covid that’s a big hole. Demand for highly skilled workers and semi skilled workers will be high. Low end workers compensation will be much higher than transfer money and other gov goodies.
Cutting rates isn’t going to help the downturn in the economy. The fed can’t lower insurance premiums/costs and the price of gas. Both of these things have a huge effect on discretionary spending. Over 50% of the population will still be living paycheck to paycheck.
I agree Laura, and it’s for show really, and that show doesn’t get much of an audience anymore. The economy is heading downward, and more lending to those in debt over their heads already, only makes matters worse (Ex. see school loans, or refinance games).
Much higher rates to do the opposite, and to curb spending, is what’s needed. To plow more money into the economy, that also won’t be paid back, like the money plowed into the Government coffers, and small businesses for Covid. Where did it all go? Nothing is left obviously, and like all stimulus before it, everyone that got some has their hands out saying: “More Please” as they spent it all and are broke once again.
America must get off of this Financial Hamster Wheel!!!
Only $4? Seems cheap. Normally coffee starts at $5. Have paid upwards of $9. Nothing special. Black americano.
You can get a box of caffeine pills at the $1.25 store. Just go for the mainline!
Grocery prices are still spiking here. Fast food is unaffordable. Rents are high. Home prices are higher. Electricity prices are outrageously $0.60/kWh. Minimum wage is $20/hour. I paid $4 for a medium cup of black coffee at a tourist trap. I was the only customer.
We bought a SKIMP snack, and two glassed of 1/4 full White Wine= $40.
China has an enormous total debt (private and public), over 300% GDP.
Some chinese officials want to copy the US, erase it with inflation. They think the FED and the treasury are shrewdness guys.
are we there yet? (end of world, sky falling, etc.)
I don’t think the FED will cut prior to the election. They don’t want to look like they are picking sides. If they cut, then they help Harris.
I wish they wouldn’t but they WILL. J Pow sent the white smoke up the papal chimney that Blue Horseshoe likes a rate cut of some amount in September.
Have fun storming’ the castle!
Oh Wow – 2.5 million disabilities in the workforce the past two years!!!!
What could have caused this??????
link to oftwominds.com
See the image – OMG https://www.oftwominds.com/photos2023/disability8-23a.png
When calculating the Jobs Report…. surely this must be taken into consideration…
Should we not revise and remove 2.5 million from the report over the past two years???
Just askin….
I bet nobody will reply to this — cuz ya’ll Drank the Kool Aid… and got jacked up on the ‘Safe and Effective’ Rat Juice…
And ya’ll do NOT want to acknowledge the carnage … cuz you (or maybe your kids???) might be next.
Anyhow… 2.5 million working aged Americans are disabled since the Rat Juice rolled out.
You really need to factor that into your investing decisions…
The government will never publicly admit this. In addition to the disabilities is all the other serious medical conditions (cancer, heart and neurological issues).
Sorry, but the economy is very far from “house on fire”. I have no idea how any rational person can interpret 4.3% unemployment and 114,000 new jobs (vs what? 185,000 expected? Out of a country with 161 million employed people?) can be interpreted as a “house on fire”/”end of the economic world” event. In the 1960s they would have laughed at anyone who was fearful of the current strong economic data levels. The Conference Board’s “Present Situation” index is at 133, for God’s sake.
actually U6 = 7.8% unemployment
can say lots of ‘workers’ = problem is most have few if ANY SKILLS
skilled workers making bank
just 10,000 SKILLED workers leaving work force each day(retiring)
And legal immigration is filling some of that void.
Being paid under the table, with no tax on the money, doesn’t fill a void, but is certainly opens up some wounds, as in tax revenue, jobs gone from the real job market etc.
You misread. I said *legal* immigration, not illegal immigration.
And 2.5M have dropped out due to vax injuries link to oftwominds.com
Thanks for the links. Don’t understand the downvotes, except from government and corporate stooges.
The majority of Americans cannot or do not want to get their heads around the biggest screw up, or screw job, in the history of this country. Covid mania made otherwise sane peple crazy. Even Mish endorsed providing second-class medical treatment to the unvaccinated. One reason among many that people remain in denial is that it is incomprehensible that the government, media, leaders, the medical community, could be so, so wrong. Because if people realize that, then it opens an ugly can of worms. What else are they very, very wrong about? Who can I turn to to tell me important things? Who can I trust?
Long COVID. It is crippling for the unfortunate that reacted poorly to COVID.
In the 1960s federal deficits weren’t 1-2 trillion annually, most states weren’t in dire straits financially (due to pensions) and a nickel could buy something.
Present-day U.S. economic health/status correlates to the unemployment rate as well as it does to stock indices — i.e. not well.
PS For those who don’t know, a Confernce Board reading below 80 is considered a recession threshold by the Conference Board.
Who cares about them? We are talking about the United States of America. They represent over 60 Countries around the World…
The Conference Board measures US consumer confidence, whose present situation index is 133, with below 80 being the threshold for recession. Is that clearer?
See my comment above — the analysts are not factoring in the jobs ‘created’ by 2.5M disabilities over the past two years…
It’s kinda like the Broken Window Fallacy… only different (worse actually).
And consider how much the medical care costs for these 2.5M have factored into GDP… lets just keep jabbing people and f789ing them up … that contributes to growth …and it ensure there are jobs for all
hahahahahahaha… We are in a Clown World
There aren’t enough medical professionals now and it’s getting worse as they are retiring and quitting.
Some of mine did, and they said it simply wasn’t worth it any longer. I have been through 2 eye doctors, I got a dentist now, who has there office worker in another State. Sort of taking working from home to a new level, but these are the times we have been forced into unfortunately. Good Luck out there!
You certainly are noisy and glad you are not my neighbour.
You sound like that crazy guy with flags all over his yard and stickers all over their old rusty truck that every town seems to have. Must be tiring to feel the burden of society on your shoulders.
Suggest you go back to your facebook echo chamber and stop cluttering up Mish’s comments with your inane viewpoints.
It would appear, that you left out the $Billions$ of loans that are not paid back, many are way behind, and many borrowed more to hang on, but will soon be falling. Let’s see what that does for the economy and go from there… 2025 will be a bloodbath imo. Homes foreclosed on, Cars repossessed, Grandparents, Parents, and co-signers finally on the hook for the non-recourse school loans, and of course the much higher taxes, rent, energy, food etc. cost as Inflation really starts to hit, now that the money to stall it is gone…
The federal reserve has no idea what the interest rate should be similar to the government believing they know what the temperature should be
And what are you going to do about it? Complain, or look for ways to take advantage of it?
Well, Wall Street has certainly weighed in on that, by spreading FUD.
Easy choice there, and still making money!
They wish to “Block The Sun Out” next go around… Idiots playing God!
What happens if they cut rates and inflation blasts completely off?
Good old stagflation. That’s my bet. Welcome to the 1970s once again. I’m already looking for avocado green kitchen appliances. And some shag carpet. The inflation we are experiencing is from shortages caused by the lockdowns. Not speculation on finance. Interest rates cuts will not stop shortages.
My guess is they will not be able to cut as much as they want without fear of stirring inflation.
I suspect they will cut twice in September then signal slower.
still seeing double digit inflation
insurance going up another 20-40% in 2025
waiting impatiently for property taxes
parts keep going up with spot shortages
electrical – up up and away
$35 for ABS Y
Neighbour owns a landscaping company… he has roughly doubled wages of his workers in the past 4 yrs otherwise they move on…
He passes on the costs to clients… he seems to think this can go on forever…
He has never heard of Herb Stein.
I’m thinking they’ll do a quarter point cut in (maybe) September to see if a knee jerk risk on occurs, and if it doesn’t, they will continue with quarter point cuts at subsequent meetings. There is no house of fire here with 6% GDP/year fiscal spending.
PS Actually, we could argue if 6% GDP/year fiscal spending *is* the house on fire, but that would be a discussion in a different context than present conditions.
They need to be sure the Bomb Squad is standing by
I am wondering if this is the Pushing on a String Phase… culminating in the string pushing back…
This all started at the turn of the century…. the CBs have been deploying epic stimulus since then… and now… that party is ending… what cannot continue… WILL STOP.
The Beginning of the End
JUNE 13, 2003 – There is increasing evidence that massive economic stimulus — monetary, courtesy of the Federal Reserve, and fiscal, thanks to the president and supply-side minded lawmakers — is taking hold. The magnitude of the policy turnaround, which caps a constructive, multi-year reflation process, should overwhelm the economic negatives — including the drag from expensive oil and poor finances at the state- and local-government levels.
Expensive oil and its impact on other energy costs remains a concern.
The current level of U.S. monetary stimulus is massive. Real interest rates have fallen 5.2 percent from December 2000 to March 2003, reaching -1.2 percent. A swing of this magnitude may be historical.
Read more at: http://www.nationalreview.com/article/207227/reversal-fortune-david-malpass
Mish,
Does “cut twice in September” mean a 0.5% cut at the September FOMC? Or something else?
Thanks.
The refrigerators from that era last forever. Buy a can of silver color spray paint.
That’s what you said was happening in Canada, but you were wrong.
In fact, Canada has cut twice already because inflation is moderating. No blast off in site.
The alternative is a deflationary death spiral (pushing on a string phase) … take your pick
Nope. I’ll take the moderate middle. You can have both hyperinflation and deflationary death spiral. That will give you two chances to be correct. You’re welcome.
All roads lead to total collapse
https://fasteddynz.substack.com/p/the-perfect-storm
I’ve been listening to crap like that for decades. Prophets of Doom and Gloom. I’m not buying what you’re selling.
I am not selling anything.
This has been going on for two decades now… and in case you have not noticed… the responses — remember ZIRP… seen the zombie companies kept alive by throwing more good money to them after bad… recall negative interest rates… and let’s not forget about Liar Loans and China Ghost Towns….
The responses have been what one would expect when faced with collapse…
You do whatever it takes to kick the can….
Or as one of my board members put it in 2008 (he was former head of bonds for a big Canadian bank)…. yeah this is totally f789ed up … but they will throw absolutely everything at this … including the kitchen sink… cuz otherwise we all die…
And indeed they threw everything at this for the next 15 years.. absolutely everything…. and these have been an awesome 15 years for a lot of folks… asset prices to the MOON!!!!
And then … whatever it takes … stopped working… then they launched the latest madness under the cover of Covid… that bought a little more time…
But now they are about to throw the kitchen sink at the mess.
Might I suggest that This Time is Different?
Got to agree. The end never arrives. I’ll take low to no real growth and inflation that is understated. A slow grinding of the middle class