Interest rate odds still imply no rate cut by the Fed until March of 2024 despite year-over-year CPI inflation falling to 3.0 percent.
Higher for Longer
According to CME Fedwatch, the first rate cut will not be until March of 2024. CME data represents the futures and options positioning of traders. Only recently did the Fed’s message of higher for longer sink in.
The above chart is for the December 13 FOMC meeting. It is little changed from yesterday, despite rapid cooling in the year-over-year increase in the CPI.
CPI Year-Over-Year
In May, the year-over-year increase was 4.0 percent. This month, the year-over-year increase fell to 3.0 percent according to the BLS.
This is the smallest 12-month increase since the period ending March 2021.
Weighted Average CME Interest Rate Projection
Steady Until March 2024?
Compared to a month ago, two months ago, even 4 months ago, expectations of rate hikes kept increasing. Not until March of 2024, does CME data reflect a rate cut.
Yesterday, the weighted average expected rate for March of 2024 was 5.26. Today, it’s 5.15 percent. That’s a change of less than an eighth of a point.
Nonetheless, it’s about a quarter-point cut vs the September and November outlook.
CPI Month-Over-Month
The CPI Broken Record Continues, Rent Keeps Rising, Otherwise Inflation Is Cooling
Two things on the Fed’s mind are the core rate of inflation (all items excluding food and energy) and rent. Both have proven stubborn.
Despite constant talk of falling rent prices please note that Rent of primary residence has gone up at least 0.4 percent, every month for 23 straight months!
The falling rent meme has been wrong for at least a full year.
For more details and discussion, please see The CPI Broken Record Continues, Rent Keeps Rising, Otherwise Inflation Is Cooling
What the Fed thinks it can do about rent remains a mystery. My guess is that the Fed is going to overshoot and it’s likely to be sudden. Timing unknown.
Once again – no mention of the primary drivers of inflation – supply constraints and WAR, and based on the move in gold, the Neocon’s are getting there way. I’m sure all of the Biden voters never thought they were voting for the draft to be reinstated.
Did anyone notice the slide in the U.S. $ in the last 5 days? DXY 103 to 100.2?
The gains in inflation are overstated. As HMK said, we’re in for a period of secular inflation. And it’s becoming more likely that the FED will cave in.
Global precious metals markets would agree. Despite the “Bull Market” and extraordinarily high risk re-entering all US indexes and so-called surprise lower inflation rates, peope are still shoring up their wealth and plan on a faster down cycle in the near future. There was no reason for metals to rise 2-4% yesterday upon the CPI report.
Metals and other commodities rise as the dollar falls. Dollar was weaker, so metals were up.
Ah…missed that thank u.
Under the radar : rent is down in 57 out of 100 major cities.
Rent never goes “down”. Someone in a lease does not now nor ever get a reduced rate in their rental payments despite the inflation %number going down. New rental offers may steady or come down $50-$150/mo and they never reduce cost of amenities pool, recreation areas, covered parking, etc) as space becomes available within properties. But I assure you, the price of things will never “copme down” to 2021-2022 levels ever again.
“According to CME Fedwatch, the first rate cut will not be until March of 2024.”
At this point, ANYONE including myself, Mish, CME Fedwatch trying to predict a recession’s arrival is noting more than a wild a$$ guess.
Inflation has come down dramatically but is forming a trough. Housing is re-accelerating on top of what 6 months ago was 40% gross margins for builders. The jobs market has softened but remains resilient as do corporate profits. Oil is starting to rebound. China’s economy “may” begin to wake up the by the end of 2023.
The fed is not done raising interest rates in two weeks, because there’s real chance the Fed, for now, will mostly nail a soft landing. And a soft landing was never meant to be a return to 2% core PCE inflation, because everyone knows that doesn’t happen outside of a recession.
By September, we’ll know if a 6% FFR becomes likely. I’m in the camp that we see inflation reemerge by late this year, bringing into sharp focus Bullard’s December 2022 prediction that a 7% terminal FFR may be required.
Again, we’re about to have a $2T annual budget deficit. Combine that enormously inflationary spending with zero property tax cuts on the horizon giving local governments tons of cap ex funding means a recession will be pushed out way farther than anyone anticipates. So that’s my SWAG!
OIL is still down 20% from a year ago…and that’s WITH cuts from OPEC+. More EVs being sold every single day means Less and Less OIL needed for Ground Transportation. Time to accelerate that trend and stop being addicted to BIG OIL and OPEC+ masters.
There will eventually be a point where we will need “less” oil. But it isn’t anytime this decade. Worldwide demand for “energy” continues to grow as the world’s population grows and economies grow. And fossil fuels still supply 80% of that overall energy need.
After 20 years of amazing advances in energy efficiency, buildout of renewables, and increasing sales of EVs, the demand for oil has increased by an average of 1 million barrels per day per year over that timeframe (from 80 mbpd to 100 mbpd). And it is projected to keep increasing by 1 mbpd over the next decade to 110 mbpd.
Meanwhile, oil companies worldwide have cut spending on E&P for the last decade because of pressure from many sources, so future supply will be constrained. Which gives OPEC leverage. OPEC supplies 40 mbpd of the worldwide 100. The US supplies 12.5 and I don’t expect that we can do much more than that unless prices go up high enough to make it worthwhile.
Crude on the NY Mercantile is up $9 a barrel in the last two weeks.
“Crude on the NY Mercantile is up $9 a barrel in the last two weeks.”
My guess is crude oil WTI has bottomed at $70ish and I expect an uptrend with the floor soon to be $80ish.
Key number to watch is US oil production. My belief is US production peaked in 2018 and now US production is on the last hurrah currently producing 12.4 Million BPDish. The US plateau will soon begin a decline. I believe this to be very significant for oil prices. It will be very evident within the next 3 years that US oil production is on the decline. How will the markets react once that becomes known.
In general, I agree that US oil production is peaking as we work from the best sites to the marginal ones. But US production can still rise, if prices are high enough to incentivize it. New drilling tech keeps improving and lowering costs as well. “Refracking old fields with new tech can produce more oil from these areas than was originally produced and at a lower cost, thus enhancing reserves and recovery.
Still, at 12.5 mbpd in the US, there is not much room for growth. I expect between 12 and 13 mbpd for several years.
There may be a temporary abatement of prices but not as much as the economic politburo’s numbers indicate. It will pick up again as wage inflation causes cost push inflation. This is not uncommon. I think we’re in for a secular period of inflation.
Nonsense. There’s a bunch of people that got hired for the Summer for Travel and Hospitality, which have been hurting for employees for two years. Those jobs go away / go back down when kids go back to school and people go back to work.
fed doesn’t give a hooey about rent prices. the fed needs to reload the bazooka with higher rates, so the next time the owners of the FEDRESNY, the bignyc bankers need free money…….plus this raising will go a long ways to crush some regional banks who are gonna get crushed on commercial r/e fails. i’ll also repeat, like a few others here, inflation is cumulative. prices haven’t backed off jack shit, since the gargantuan currency conjuring for the plague free money from helicopters.
You’re not incorrect. Used car prices are heading higher after a runup in 2021.
https://www.cargurus.com/Cars/price-trends/
One would say, the prices have reached a permanently high plateau.
If only those backwards ancients in 1929 know how to run gargantuan deficits and multi-trillion dollar balance sheets…