So, far the change is very subtle.
Chart Note
- I created the above chart with CME Fedwatch data
- There are 7 more Fed meetings in the months shown.
- I took a weighted average of target rate probabilities for today and from a wee ago.
The biggest change is for December. A week ago the implied probability was 3.07 percent. Today it’s 3.15 percent, 8 basis points higher.
A quarter-point cut is 25 basis points, so 8 basis points higher takes out about a third of a cut.
The Fed’s current target rate is 3.50 to 3.75 percent, with the middle at 3.625 percent.
3.625 minus 3.15 is 0.475. That’s just under quarter-point cuts. A week ago, the market expected just over two quarter point cuts.
Five Key Competing Forces
- Jobs
- Rent
- Oil
- Health Care Insurance
- Tariff Impacts
Jobs and Rent are disinflationary forces. The labor market is weak, and the rate of increase of rents is falling.
Oil and Health Care Insurance are inflationary forces. Oil has bottomed and Health Care Insurance is a disaster. I expect Health Care to show up in the January PCE report due later this month.
Tariffs have a stagflationary impact in that they cost jobs but tend to raise prices.
This year, the bond market is mostly in line with a disinflationary expectation. If that continues, falling demand from job losses rates to be the key idea.
Related Posts
January 21, 2026: Expect a Big Divergence This Year Between CPI and PCE Inflation
Rent and Healthcare go different ways in 2026. Plus there are huge timing issues.
February 27, 2026: BLS Private Payrolls for 2025 Q2 Overstated by ~847,000
The Business Employment Dynamics report shows -321,000 vs Payroll report +526,000. Believe BED.
March 3, 2026: Expect a Negative Revision to 2025 Q4 GDP. Two Reasons
A recent construction report revision suggests a negative revision to GDP.
“Oil Has Bottomed”!
Gasoline $3.29 Gallon In Colorado – Up $1.00.!
How Did the War In Iraq Impact Fed Rate Cut Odds?
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it wont matter.
lets say donny would drop rates to 1%
so debt service on $40 trln will be 400*600 bil per year
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PROBLEM IS USD DEFICIT RUNS 2500-3trln per year
so in best scenario it will be $1.5 – 2 trln
see? PROBLEM IS USA GOV SPENDS TOO MUCH MONEY
usa gov spends 7.5 trn per year, and collects $5* 5.5 trln
so fully 30% is printed
alx
War with Iran this time
I’ve been pounding the table yields on the 10 year US bond were set to move to the upside after breaking above the 200 day moving avg. Whatever E-wave count I had needs to be re-assessed. Hurst cycles indicate a 17-18 month cycle bottom is due, or happened a few days ago.
The best E-wave count supported by hurst cycles is September ’24 nominal 54 month cycle low was end of WAVE B corrective zigzag that started from highs of ’23. The end of ’24 to the beginning of ’25 was a Wave A zigzag of a double zigzag. The rest of ’25 to a few days ago was a Wave B triangle. Wave C should push yields above 5.0% fairly quickly.
Zero by end of the year – When has the Fed ever been on time with rates. Private Credit is going to cause a contagion just like 2007. We are at the tip of the iceberg that is going to flow over to financial institutions, especially insurance companies with offshore special purpose vehicles. The Fed will be following the 2-year rate down to zero percent as everyone seeks safety and liquidity. We have only seen the cockroaches of fraud and not the systemic issue of extend and pretend lending. New loans have only been to NDF’s and hedge funds. There has been no new lending by banks for years. The banks are all to happy to sit on the newer short duration bonds and wait for them to appreciate.
1) Jobs – Even from Biden admin – there were no new jobs for domestic born workers.
2) Rents are plunging and owner equivalent rent is major reason Fed is late.
3)Oil is only going to push the crash faster by soaking up liquidity. China just lost their biggest cheapest supplier and just lost trillion in loans from Iran.
4) Healthcare has got lots of issues and the biggest is being weaned off by the government.
5)Tariffs like other taxes are deflationary. Don’t swallow the Keynesian lie. When are taxes inflationary? – Only if the consumer can afford it and they can not.
Most hated trades in last 20 years will be popular again. Bonds.
What comes around goes around.
This particular war is with Iran, not Iraq…
Although, who is to say Iraq won’t flare up into a 4th wave…
#1 Gulf War (1990-1991), #2 Iraq War (2003-2011) & #3 Operation Iraqi Freedom (2003).
Now we are insuring Strait of Hormuz maritime shipping via DFC.
“Now add the energy shock. Core PCE could reach an estimated 3.5 to 4.7 percent by year-end under sustained Hormuz disruption. The Federal Reserve, at 3.50 to 3.75 percent after 175 basis points of cuts since September 2024, is frozen. Swaps markets price only fifty-six basis points of additional cuts for all of 2026, with a roughly fifty-three percent probability of no cuts through June. Incoming Fed Chair Kevin Warsh, nominated to succeed Powell in May, is a monetary credibility hawk who has repeatedly argued against accommodating supply shocks.”
https://shanakaanslemperera.substack.com/p/the-invisible-siege-how-insurance?utm_source=post-email-title&publication_id=6647671&post_id=189746120&utm_campaign=email-post-title&isFreemail=true&r=a8mx&triedRedirect=true&utm_medium=email
Welp…looks like team Trump saw the insurance discussion from this AM…LOLz
Spec traders BTFO’d
Trump Announces US To Cover Insurance For All Ships Traveling Through Gulf, Will Provide US Navy Escorts
https://www.zerohedge.com/political/oil-tumbles-trump-floats-insurance-tankers
With what authority?
That granted him by Lord Satan.
This is a good data plot.
My two cents is that this is due to Kevin Warsh starting in May. Note that the first two months have little movement, as few expect the Powell-led Fed to cut any further.
After that, I think it’s a given that Warsh will push for cuts, but if inflation keeps pushing back up, he is going to have a heck of a time convincing the committee to do it. He’s only one vote out of 12, and given the circumstances of his nomination, many will be more skeptical than they might of someone like Powell.
I think rate cuts are irrelevant now. The real question is: how soon will the Fed and Treasury fire up the printing presses to save the economy because of the war?
Trump Insurance Company, run by Lutnick and Lucky Larry. Among the fringe benefits are paid time off to take the kids to school and visit a dermatologist.
Time for an informal poll: Does everyone know what Avery2 alludes to?
Hit up/down vote on my comment here if you know (up) or don’t (down). (Just asking for your vote. Not asking for explanations.)