Based on Fed economic projections, it should not have cut interest rates today.
Lead image is from today’s Summary of Economic Projections (SEP) from today’s FOMC meeting.
Key SEP Projections
- PCE inflation for 2024: 2.4 percent up from 2.3 percent.
- PCE inflation for 2025: 2.5 percent up from 2.1 percent.
- Core PCE inflation for 2024: 2.8 percent up from 2.6 percent.
- Core PCE inflation for 2025: 2.5 percent up from 2.2 percent.
- Federal Funds Rate for 2025: 3.9 percent up from 3.4 percent.
Fewer Rate Cuts and More Inflation
The stock market did not take too kindly to the Fed’s message.
The Dow closed lower by 1,123 points (2.58%) The S&P 500 dropped 178 points (2.85%). And the Nasdaq declined 728 points (3.62%).
Self-Serving FOMC Statement
Please consider the final paragraphs of the Transcript of Chair Powell’s Press Conference Opening Statement December 18, 2024.
The Fed has been assigned two goals for monetary policy—maximum employment and stable prices. We remain committed to supporting maximum employment, bringing inflation sustainably to our 2 percent goal, and keeping longer-term inflation expectations well anchored.
Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country.
Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.
This Fed does not follow the data, does not serve the public, and has singlehandedly destroyed the housing market with an unwise mix of QE to infinity and rate cutting madness.
Higher inflation expectations coupled with today’s interest rate cut makes little sense. Nonetheless, the Fed cut rates today with only one dissent.
Congrats to Beth M. Hammack, who preferred to maintain the target range for the federal funds rate at 4-1/2 to 4-3/4 percent.
On the Fiscal Front
Earlier today I asked Do You Have Any Faith that Sheriff DOGE Will Reduce the Fiscal Deficit?
I don’t.
And if Trump does follow trough with budget handouts and huge tariff hikes as promised, inflation will leap.
An Interactive Exercise: What Would You Do to Balance the Budget?
On December 4, I offered An Interactive Exercise: What Would You Do to Balance the Budget?
Trump is proposing at least $2 trillion in deficit-expanding, tax cut ideas. DOGE would need to come up with $2 trillion just to keep the existing deficits.
I balanced the budget. Team DOGE hasn’t and won’t. But my proposals have the same philosophical issue.
How the hell is DOGE going to do a damn thing when Republicans will have a smaller majority than they do now?
Balancing the budget with tariffs is economic silliness. For example, if Trump raised tariffs on China, trade with China would collapse to nothing meaning revenues raised = zero. But US prices would rise.
I am open to alternative ideas provided they are mathematically doable.
Please click on the above link and see if you can balance the budget.
Why is everything the government does, everrything politicians do so obviosly corrupt, parasitic, and incompetent?
Its becaue they’re doing it on purpose.
They’re deliberately causing this damage.
They will strangle Mr. and Mrs. America for the next 1% GDP growth and CEO bonus.
GDP means nothing, GDP per capita at the meidan tells you how average people are doing.
?
!
Question For Mish:
Is deficit spending counted when calculating the country’s total GDP?
The number that is publicly touted by the Fed, talking heads, etc..
I believe it is.
A buddy says it is not.
And, since that deficit spending made up more than 6% of all spending in the country last year, it is not insignificant.
Thanks
6%???
What in the hell are you talking about?
$1.8T / $6.75T is 27%.
…GDP, not the money that Gov spends (budget)…
Deficit Spending is indeed factored into GDP, real and nominal.
There is not much reporting of nominal but the numbers are available.
Real means adjusted for inflation using a GDP-deflator, not the CPI nor PCE
One can take measures of increase in total debt vs increase in Real GDP (or better yet GDI) and arrive at calculations of how much additional debt does it take to produce additional GDP or GDI.
But short story, government debt is factored into GDP and GDI, both real and nominal. So you are correct.
So, by running a deficit of 8% of GDP, we’re buying nominal GDP growth of 3%. Win The Future!
Bingo.
Which means, BTW, that the U.S. has been (in reality) in a recession for a looooong time.
If the American worker was to look at his personal financial condition the same way, it would resemble a person that earns $100,000 but spends $106,000 and thinks he is “getting ahead!”
As Warren Buffett says – tie a balanced budget to Members of Congress’ total compensation package and introduce term limits. You will have wastly better financials in 2 years.
If Democrats don’t pass a clean CR, the shutdown is on them. Biden isn’t even aware what’s happening. What a sick joke this administration has been
Since Trump and Elon tanked the deal that was in play from the House Republicans, what would you have them tell the red county voters that were begging House Speaker Johnson for extra hurricane relief and farm aid that was in the ‘unclean’ CR?
First, I would tell them that we can’t afford $100B.
Second, I’d want a detailed accounting of who’s A$$ that gigantic number flew out of.
Third, I would tell everyone involved that politics as usual are over.
Apparently, nobody really understands the power that DOGE & social media will have with bringing transparency to DC.
Fair enough. I’m not a farmer nor do I live in a hurricane zone. And I’m not a federal employee and don’t receive social welfare/insurance programs like Social Security. So both the CR and the extra spending do not affect me directly.
But I do wonder if Trump and Elon (and now sounds like Speaker Johnson) will have a press conference to congratulate all of those people I listed above for their patriotic duty to take the hit to reduce the deficit. Since “transparency” rules!
You recall last month, when Musk said there would be some “suffering”. (Not for him, of course, LOL).
I don’t have a problem with helping people in need, but part of what’s needed is to justify the gobs of money spent on “relief”.
I think a better solution would be to force FEMA to work with their counterparts in each state hit by natural disasters to both justify & manage the spending the money wisely.
Does it seem like $100B is too much federal relief monies? I don’t know what the best number is, but I doubt it’s anywhere near $100B.
And the whole shell game in the past 2-3 years of FEMA potentially using their monies to pay for various illegal immigration costs would be a great place to start cutting.
If the U.S. would confine relief to domestic needs and stop being the world’s war monger and “Daddy Warbucks” the U.S. would have peace, prosperity and a debt paid off budget surplus government.
Also, we should move the nation’s capitol to Barrow, Alaska. Make “serving” in Congress less enjoyable, so they don’t want to avoid tough choices to hang onto their seats and cushy perks.
Needles,California would also make a nice capital as would Burn,Oregon. lots of free parking in both places..bring your own water though…
Re “ tie a balanced budget to Members of Congress’ total compensation package”
Their total compensation is mostly friendly donations, inflated speaking fees and “book deals”, and insider trading. All of those have to be reined in before you can link compensation to balanced budget.
“This Fed does not follow the data, does not serve the public, and has singlehandedly destroyed the housing market with an unwise mix of QE to infinity and rate cutting madness.”
Imbeciles, looking out for the rich, master of bubbles
Truer words have never been spoken. Amen, brother Mish!
Dovish is the new Hawkish.
The Economy Has Failed the American People, But It’s Taboo To Say Whyhttps://charleshughsmith.blogspot.com/2024/12/the-economy-has-failed-american-people.html
It’s been a terrible time indeed Robby. A dark period in our history.
That’s what we get for meddling in other countries’ affairs. It is expensive to be the policeman of the world.
its only expensive to the taxpayers, its an investment for the business interests of the state department, its owners and intelligence agencies. You say potato, I say potatoh..
Can’t correct this business cycle without resorting to a command economy
cant correct the business cycle without a functional economy and a functional currency based on precious metals. everything else is a piece of paper and a promise, and we know how government promises turn out..
What hope can do for people
For the first time since February 2022, US Leading Economic Indicators was positive in November (post-election)
OMG, this is hilarious. And from such an economic hubris-soothsayer LOL
Only three components of the LEI were actually negative in this positive November transformation, and one of them was the “average consumer expectations for business conditions” (post-election).
“Self-Serving FOMC Statement”
Is there any other kind?
So, they see higher inflation and they reduce rates which is inflationary. Powel trying to have inflation increase under Trump?
Maybe Arthur Burns is Powell’s economic hero. Burns ran a loose monetary policy in the 1970’s, as payback for Nixon nominating him to the Fed Chairman post.
Burns ran the Fed Funds “bracket racket” when all the pressure was on the top of the bracket.
But if we’re in recession as has been alluded to so many times, the fed should be cutting no?
Ironically, my position has been that it really doesn’t matter what the Fed does anymore. It can hike to 20% or cut to 0% or even negative but if there aren’t enough people to do the work that needs to be done, it won’t matter. The end state is high inflation.
The core issue and the huge elephant in the room no one talks about, even reading close to 50+ comments on this thread, is that 80% of the problem is caused by 20% of socialism: social security, medicare and related socialist programs.
Getting rid of migrants will be like taking a cup of water from the ocean and stating the problem is well underway to be fixed….lol, no it’s not. The same for getting rid of Dept of Education, Dept of Labor, whatever. Those are all cup fulls of water from the ocean of real socialism that is entitlement “benefits” for mostly seniors.
And for goodness sake, don’t tell me you paid for it because if you did, it wouldn’t be going bankrupt. If it was paid for, no one should be begging for caps to be lifted so leeches can drain more blood. It was never paid for and now the bill is coming due. Good luck to you if you are a born again socialist, you chose the wrong religion and it’ll lead you to financial ruin soon enough. You have been warned numerous times.
Inflationary depression. Worse than any recession.
think about the 1970’s, now add lots of matches and gasoline..
Non-working spouses never paid for their benefits. Their working partners did not pay extra to get spousal coverage.
Dept of Ed consumed $248 billion last year..
https://fiscaldata.treasury.gov/americas-finance-guide/federal-spending/
Consumed is an apt word, though perhaps not entirely accurate, I would consider “destroyed” or perhaps “recirculated to parties without adding any value or education” though the truth becomes wordy as you can see.
when a house burns down in a city, neighboring houses can catch fire. London burned to the ground from a single point of fire, so too Chicago.
When the economy burns down, it will take many houses with it. When people have nothing to lose, they will do anything to anyone. its not a very comfortable thought to lose the last vestiges of social trust. It tends to bring a great amount of anger to people who have very little and also very little to lose.
So be careful the path you chose to attain economic freedom for all, some may not find it as comfortable as you dream it is.
It matters a lot what the Fed does because they could make things a lot WORSE if they stopped QT and re-started debasing the dollar (money printing) to “buy” bonds and MBS again.
Deflation, deflation, deflation. => recession, stagnation, depression.
Mish keeps talking about inflation, but there isn’t any: price rises are not inflation.
Yields around the world are falling, along with trade. Debt is high, demographics low.
yes there is no inflation, when you take out food, energy,housing,clothing and bullets. amazing what a few adjustments can do to a model. Its funny we can all smell the bullshit in the atmosphere but no one can ever find it in the books…
Looks like more inflationary depression to me. Oh well.
Trump now says “maybe” when it comes ending support for Ukraine. During the election, it was “the war will stop the day after I am elected”.
He lied. Repeatedly, and at length. Only fools believed him, and they’re already making excuses for their abuser.
Time for them to head for the battered women’s shelter.
Albert, show me on the doll where he touched you. Is he in the room with us now?
Trump will be sending American boys and girls to fight Iran on behalf of Israel. Don Jr, Ivanka, Barron, and Tiffany will be lounging on Miami Beach with Yair Netanyahu while the blacks from the ghettos and whites from trailer parks fight the war in order to have affordable college and healthcare.
Trump will have to keep financing the Ukrainians in order to keep the Russians preoccupied. The busier the Russians are in Ukraine, the less active they are in places like Syria, Iran, etc.
“Support” for the Ukraine won’t make a damn bit of difference to the eventual outcome. Half of it is stolen and the remainder is wasted. Russia will retain Crimea and the four new oblasts. The main question is how much more death it will take until the Ukraine (and more importantly the US) acknowledge reality.
Every time they cut the Fed Funds rate, long bond yields rise. Maybe they are trying to drive companies that have to roll over debt (hint: that is every company) into bankruptcy as fast as possible.
Cause and effect. Suck it up. The next Fed cut will be the Arthur Burns moment, straight up.
Don’t people expect to have a ‘normal’ yield curve eventually? We’ll never get there if the Fed funds rate is held above 4.5% forever, like so many people here seem to want. That’s the OVERNIGHT rate for interbank lending. For a normal, functioning economy, the ten- and thirty-year bond rate should be significantly higher than that.
Long-term rates are increasing finally; that will fight remaining inflation better than a higher overnight bank lending rate.
“Balancing the budget with tariffs is economic silliness.”
I just hope we get a chance to test this theory.
It’s one of the few things he remembers saying, so there’s a solid chance. Without the subsidies, Elon needs those tarrifs to keep his cars competitive. Since trump is his sock puppet, he’ll probably get them.
“This Fed does not follow the data, does not serve the public.”
Bingo!
The old school guard at the FED has long since retired.
So if there isn’t any reason to cut rates and inflation is raging, which means a data dependent Fed would be raising rates or at the very least standing still, what in God’s name is going on? Is the Fed being intentionally reckless? Is the institution now revealing itself as a partisan cabal? Is the next move to say sorry Sir but we have to change course and materially raise interest rates to stomp out inflation? Trump says okay because he is cornered. So as soon as Trump steps into the Oval Office he will be asked to give the go ahead thereby detonating the economy so he has to get participate in the destruction of the economy? Okay maybe a bit far fetched but you have to admit the whole thing smells a bit off. In the meantime should anyone want to be long anything with a maturity greater than 2 years?
‘Is the institution now revealing itself as a partisan cabal?”
It’s not the first time
there is no inflation… there never was… price rises are not inflation.
there has been synthetic price rises to make it look like inflation, but they mask the very real deflation that is everywhere. The world has yet to recover from the GFC.
whatever your smoking i need some. have you ever bought groceries or a house?
I think the corrupt bureaucrats were caught off guard with DOGE. Today, they got a taste of what it is capable of. They now realize that even without any official authority, it is probably their single greatest threat.
One thing I’m sure of, the hoard of drifters are banging their heads tonight, trying to figure out how to stop DOGE. They are going to find out that Musk and Ramaswamy are not pushovers.
Doge is a joke idiots don’t get.
All numbers are backward looking. What’s coming is going to feel like inflation But you will be wishing it was normal inflation. It is going to be through currency destruction. There’s a great reset coming. This has been in republican circles for decades. They believe the only way to reset things is to destroy them first. That won’t go over well with those holding US debt.
https://www.yahoo.com/news/government-funding-running-unless-speaker-192014241.html
I am open to alternative ideas provided they are mathematically doable.
–
You aren’t thinking in terms of a reset. Trump wasn’t elected to preserve anything. Rip up your budget and what’s mathematically doable. Think in terms of zero based budgeting and economic depression. Trump wants to turn America into Russia. Last I heard from my customers in Russia there was a food shortage in Moscow.
Lol. I think you’re in the wrong forum. The gullible idiots are on bluesky
Trump is a change candidate. Disagree ? PROVE Lumbergh and me wrong. Trump thinks he won in a landslide. But he didn’t. That will be his undoing.
Lumbergh is your sockpuppet?
Oh now you’ve insulted their daddy…
Trump can refloat the Social Security fund by charging rent for living in all these fanatics heads. Trump is a change candidate, and yet you who have lived in only this fantasy Wall Street economy constructed over a boarded over main Street, think you understand change and can predicate it exactly, when you can’t even understand the current reality.
You can’t predict the future if you don’t understand the present. Its a predicate for modeling.
Trump and Musk just a couple billionaire communists trying to destroy their own fortunes. What Lumbergh’s path of reasoning? The guy has some problematic notions of human pyschology, let alone economics..
We’re toast
Trump is nothing if silly. I expect the US to declare bankruptcy and let the courts deal with those owed money. Trump knows bankruptcy and is very very smart believe me.
Countries can’t declare bankruptcy. They always have the ability to just raise taxes to bring in more money.
The last time the USA raised taxes to any material degree was when, around 30 years ago? That got George H.W. Bush un-elected, but led in that decade to a balanced budget, when the parties could act in a reasonable bipartisan way. At that very moment, the parties detached from reason, and ever since. We are so far from that now. We are looking at tax cuts again now, as the deficit again (as in W. Bush’s cuts, as in Trump cuts, and Dem spends) will be bumped upward. Sustainability is a dirty word in the fad “reality TV” of today’s politics. The crowd (both sides) will get what it has demanded and so richly earning for itself.
Gains since election day are gone. Where’s the great economy Trump promised. Layoffs and deep recession ahead.
Wow! The Orange Haired Guy hasn’t even been sworn in and you’re already blabbering about the sky is falling.
Well, Lumbergh, let’s get something clear. Trump has got a lot of Sh!t to clean up from your boy, Brandon, so it may take some time to get the ship turned. His downing of the CR after COB is a good start.
See you on the other side and stop being such a sore loser. Your guy & Comrade Kamala have had 4 years to screw things up. And damn they’ve done a good job of that.
Or feel free to just stop posting here on Mishtalk.
Even as you speak, the GOP Congress is attacking itself. That may be necessary, but it is not your rainbows and unicorns hopium. But your rage is so blinding apparently, that is dominant in the “points” you are trying to make.
.
I called this guy a sore loser. “RAGE” – that’s hilarious.
No thanks, peelo!
If they’re hawkish, why did they lower rates today?
They know there’s a depression ahead in 2025.
Their meds are off. With schizophrenia that’s a hazardous condition.
They were hawkish on lowing rates.
As I noted in earlier similar discussions, the real reason the FED is flailing around attempting to justify interest rate cuts is that the government desperately NEEDS lower rates to reduce the interest they have to pay on our huge deficits.
Current interest payments on our debt is running close to $1 TRILLION/year! That’s one trillion down the drain that could fund a lot of beneficial projects.
or a lot of hookers if you’re Hunter Biden..
brutus2
I am sure this was on page 200 in the news today. Don`t worry be happy.
AI Overview
The largest current account deficit in US history was in the third quarter of 2024, when it reached $310.9 billion: |Current account deficit |$310.9 billion| |Percentage of GDP 4.2% |
This was a 13.1% increase from the second quarter, when the deficit was $275.0 billion.
The deficit was caused by a surge in imports and a decrease in income from abroad.
The current account deficit measures the flow of goods, services, and investments into and out of the country. Some economists warn that the large deficit, combined with the growing budget deficit, could be a problem for the US economy.
They forget to mention – only in a rational world.
Deflation ahead. Government will eventually get shutdown.
That’s actually good news but you’re too dumb to know any better.
Like Syria?
One should be pinning the tail on the DOGE for the market drop, as well as the Fed.
DOGE might just put an end to a lot of wasteful, yet transiently profitable gravy trains.
Once again the Oracle of Omaha had it right.
Start with a five year hiring freeze in government……
Will this increasing inflation be “transitory”? [lol]
If inflation isn’t anticipated to fall BELOW the FED’s 2% target, why would interest rate cuts be on the table at all?
EXACTLY
The should always be BEHIND THE CURVE on droppign rates in the face of inflation. Make sure the inflation pressures have come down substantially BEFORE even mentioning to the markets that rate cuts are coming.
“The elected representatives have heard you and now the terrible bill is dead. The voice of the people has triumphed. VOX POPULI VOX DEI” – Elon Musk, head of the powerless DOGE.
Feeling unburdened by what has been yet?
Looks like the FED dropped a lump of coal in the Christmas stocking hanging over the fireplace.
“Hawkish Fed” is an oxymoron.
Phones were ringing off the hook in DC today because of the outrage over the spending bill after reading an X post from the “powerless” DOGE heads. Even before taking office, it is obvious what kind of influence DOGE yields.
DOGE: 1, Deep state: 0
Johnson’s favorability rating as speaker has fallen to new lows. Time to vacate.
A disgraceful bill
And they tried to get a raise of 40 percent with a 9 percent approval rating.
Countries are at war with each other…
Yi Peng 3: Swedish police board ship in Baltic severed cable probe | CNN
Russian Air Bases, Oil Terminal in Flames After Combined Ukraine Attack
but with friends like the Stable Genius and the First Buddy…
subverting Bipartisan Deals & shutting our own Govt. down…
who needs enemies?
Musk Kills Government Funding Deal, Demands Shutdown Until Trump Is Sworn In
Danielle DiMartino Booth points out that we’re in the longest streak of declining stocks outnumbering advancing stocks for over 100 years. Also the first ten-day streak of the Dow Jones declining since 1974….
https://www.youtube.com/watch?v=xNo0_e_MALU
Over 100 years INCLUDES the 1929 crash (barely)
That’s breadth. But doesn’t matter in an oligopoly that the US has become.
I am short long dated Treasuries. Everytime the Fed cuts rates long dated Treasuries go lower, because the Fed is not serious about eliminating inflation. Again from me “Why in the world would we have economist running anything?” It is not a science. It is not licensed by the state, and they don’t know what they are doing. Just set the Fed Funds at 6 percent until the Congress balances the budget, then go on vacation.
Market crash incoming.
More importantly, how did golf go
Exactly!