Following the third rate cut in 2019, the Federal Reserve issued this short FOMC Statement.
Information received since the Federal Open Market Committee met in September indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
Dissents
Esther George and Eric Rosengren dissented. Both preferred to maintain the current target range of 1-3/4 percent to 2 percent.
Statement Tracker
The Wall Street Journal Statement Tracker shows a plethora of changes primarily because there was no discussion of repos as in the previous statement.
Hints of a Pause
The WSJ notes Officials removed language used in June, July and September in which the rate-setting committee said it would “act as appropriate” to sustain the economic expansion. They replaced that phrase with a milder alternative. “The committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path” of its target rate.
The WSJ took this to as Hints of Pause as the Fed thinks it is done cutting rates in 2019.
CME Fedwatch Odds
For now, the market believes the Fed will not cut again this year.
Current odds are 20.1% of one further cut and 0.8% of a 50 basis point cut.
Earlier today, the BEA reported 3rd-Quarter Real GDP Rises 1.9%. That was near the top of the Econoday consensus range.
Consumer spending was strong.
Weak consumer spending would change those December rate cut odds in a hurry.
Mike “Mish” Shedlock
Tre Fed follows the market rates. They needed to cut to get in line with the market as always. Charting shows the Fed always adjusts after Treasuries. I used to track the charts but now I just see where Treasures are at auction and trade depending on where it points to the Fed going.
So what’s next to keep this mess afloat? Massive fiscal policy via public works like Japan and China? Helicopter money? I’ll bet they’ll all be tried. I’ve got a really bad feeling about negative interest rates…
The lower rates arent based on poor economic activity but resets coming due in corporate bonds. They need lower rates to refinance. Corporate debt is the biggest bubble.
Good observation by CO on corporate Debt
Short post on that in a bit
Perhaps, under the guise of fighting climate change, the financial and corporate elites will push the debt even higher. It justifies negative interestrates and absolute mindblowing debtlevels, if it’s ‘to save the planet’. Mark my words…that freaky circus has only just begun.
Haha. Another great call by me to move back into bonds a few months ago. I now have double digit returns for total bond portfolio for 2018 and 2019.
Despite what the Fed says we are headed lower next year. The pause will be until 2020.
read his statement carefully as he dodged the truth about the RePo market…did not come right out and say “it isn’tQE4 but fibbed about the need to keep liquidity in the system…truth be told the same thing that happened last year was happening again…Hedge funds are being redeemed out…401K’s have been maxed out by most consumers…and there is not enough money in the system to cash people out…Powell is a puppet…nothing more and nothing less…this feels just like the end of 2007 all over again…
“For now, the market believes the Fed will not cut again this year.”
…
For the September “dot plot” not a single member predicted lower rate than current for rest of 2019. If they cut again in December … they got some ‘splaining to do … if everything going along swimmingly (per FOMC).
I think a “data dependent” Fed wouldn’t have cut rates. Data hasn’t been good, but at least it’s been less bad. If there was ever a chance to pause, this was it. Of course, they likely know more than we do. The next leg down could soon follow.
The beauty of being “data dependent”, is that you can, entirely arbitrarily, pick and choose which data to “depend” on, in order to exactly as you please exactly when you please to do so.
It’s no different from how easy it is to rule by “The Rule of Law,” when you can arbitrarily alter and reinterpret The Law entirely at your arbitrary discretion.
The Fed just announced that all private sector baby boomer pensions have been canceled effective immediately. Its just a matter of time before local, state and eventually the federal government defaults on public sector pensions also.
That is what the Fed really announced today, but they know most public school “graduates” can’t do math and won’t figure out what artificially low rates do to pensions… like lottery tickets (also sold by government), Fed rates have become an added tax on people who can’t do math.
The Fed’s actions have no longer have any material effect on commerce (they haven’t since at least 2008 if not earlier).
Central economic planners always make a mess
PS — generation X and younger do not get pensions in the first place, ergo no pension effect for them.
Boomers were expected to re-define retirement as we know it…. SURPRISE! They re-defined it to mean living in an RV by necessity while eating cold baked beans because boomer retirement funds were confiscated by Bernanke, Yellen and Powell.
More defaults to follow!
G7 governments have lived way beyond their means for decades, so more defaults are inevitable. The defaults will be sneaky, back door type defaults (which will cost even more) so a lot of lawyers will spend time arguing the exact meaning of default.
Boomers will get much less value than they promised themselves — which is a default by any other name. Boomers built piles of debt, so that is what they have to retire on.
“Boomers built piles of debt, so that is what they have to retire on.”
Touche!
They did spend some of the borrowed funds buying politicians, ambulance chasers and central bankers, though. Which is why those groups can be relied on to run around shaking down everyone else in order to facilitate the boomers servicing their debt.
Generation Xrs will vote in socialism where everything is shared. Why would they need pensions? Heck, they will extend the system to the whole world; everybody will hold hands and sing kumbaya. To be followed by Darwinian natural selection…
Boomers are the 401k generation. I know many that are happily retired. Pensions are so ww2 generation.
I know two people who think the CIA killed JFK, and two others who think they were abducted by aliens. And several people who think they make a mean BBQ but really shouldn’t be boiling a hot dog.
Spewing anecdotal evidence is fun!!! Not helpful in drawing big picture inferences though.
401Ks are pensions. Just ones funded by the Central Banking arm of the government debasing productive working people; instead of by the Taxing arm taxing them.
More cowbell!
Utah? Salt Lake City is the place with the highest leverage ratio not in California. A housing shortage is one of the key reasons buyers in Salt Lake may need to stretch their budgets so much in order to be able to afford a home. link to lendingtree.com
Interesting. Utah must be getting California transplants too. We know Colorado has a bunch.
Life has become better, comrades, life has become more cheerful
Stalin 1935
Well, no wonder Wall Street is up, the statement that interest rates will not go higher till inflation picks up “significantly” means rate are never going up again because we could have Wiemar level inflation and they would pretend it does not exist. But, of course tomorrow the market might be down sharply when they show their displeasure at not being handed the last key to the last vault of our money printing machines.
Unemployment is starting to tick up in key states, consumer spending is up some, but it has to be because prices are rising far faster than is reported in the fraudulent CPI. Earnings are crap with some exceptions, stagnant wages are getting even more stagnant, and consumer confidence is falling, along with home sales. There will be more cuts this year, if not one 50 BP cut then at least 2 25’s. Because only the blind will not see we are either in or just now entering recession. And their tools are not going to be adequate for the job.
Bonus points for the fact that Fraudzilla will be impeached and removed from office well ahead of the next election.
Inflation will probably show up just as pensioners need the principle on their non-accrual nest eggs (zirp) to buy groceries and pay the rent or heating their home.
Yep. They have the official statistics data under control if not the facts.
Tell me, it turned cold a few days ago, I have not had my coat off since. The HVAC runs about half the time, I can see my bill from August tripling to about $180 and it is not even winter yet.
Oh poor baby try $400 + wood and propane. Of course,that’s the wifes fault I would cordon half this monstrosity off and sleep on a sofa couch if it were up to me. Still though, I feel ya.
Yeah, a pause because you’re almost at zero. And the idea that negative rates are no good and wont work will be the exact reason they try that route. Just like everything else. Able to conjure up digital zeros from thin air, then put humans in charge of it, what could possible go wrong?
Great, NIRP will be wonderful when I can get a house next year with a -1% 30 year fixed mortgage. Nothing like the bank paying for part of my house. Like that is ever going to happen, it is not, and that is why negative rates cannot stimulate the economy, bail out the banks yes, make bank share holders richer sure, but stimulate the Main Street economy? Not a chance. People who claim (you see it all the time on CNBC and such) that lower and negative rates will allow banks to lower YOUR interest rates so you can spend more are just insane, my credit card is right now at 2,835 basis points above the US Treasury 2 year rate, even though I have a PERFECT payment history and usually pay it off each month.
Just remembered, yesterday I looked at Florida mortgage rates, the AVERAGE for October 30 was 4.08% and the 5 year ARM was at a whopping 4.25%. The 30 year fixed rate is based on the UST 10 year rate, so, some people can get lower mortgages, but clearly others are taking the higher rate ARMs hoping the Fed will keep dropping rates. Also, HELOCs are driving up the apparent yields. People are taking wealth out of their houses and using it to survive. That is going to be a disaster as we enter recession and they can’t service the debts.
Well, at least Trump has his next talking point after he finishes milking the bin La… er, al-Baghdadi nonsense.
Always interesting to watch how the news cycle slows down a bit at rare times like this when all four major sports leagues are playing simultaneously.
Glad they are at least “signaling” a pause from here.