The Fed minutes of the December 12–13, 2023 FOMC meeting were released today. Would you believe 6 rate cuts in 2024?
The Fed Minutes suggest rate hikes are over but there is no hint of rate cut timing.
Three Key Paragraphs
In discussing the policy outlook, participants viewed the policy rate as likely at or near its peak for this tightening cycle, though they noted that the actual policy path will depend on how the economy evolves.
In their submitted projections, almost all participants indicated that, reflecting the improvements in their inflation outlooks, their baseline projections implied that a lower target range for the federal funds rate would be appropriate by the end of 2024. Participants also noted, however, that their outlooks were associated with an unusually elevated degree of uncertainty and that it was possible that the economy could evolve in a manner that would make further increases in the target range appropriate. Several also observed that circumstances might warrant keeping the target range at its current value for longer than they currently anticipated. Participants generally stressed the importance of maintaining a careful and data-dependent approach to making monetary policy decisions and reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the Committee’s objective.
Participants discussed several risk-management considerations that could bear on future policy decisions. Participants saw upside risks to inflation as having diminished but noted that inflation was still well above the Committee’s longer-run goal and that a risk remained that progress toward price stability would stall. A number of participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained, and pointed to the downside risks to the economy that would be associated with an overly restrictive stance. A few suggested that the Committee potentially could face a tradeoff between its dual-mandate goals in the period ahead.
The minutes are as expected. The Fed wants to walk back ideas that it will soon cut rates, but with limited success.
March Rate Cut Odds
The market believes the Fed will start cutting rates in March.
Possibly in response to the minutes, the market reduced the March odds of at least one cut from 79.0 percent to 70.8 percent.
Looking ahead to December, the median market expectation is for approximately six rate cuts.
Soft landing and rate cuts at the same time. Economy must be worse than made out to be if they cut with high inflation
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“Would you believe 6 rate cuts in 2024?”
Denninger said some time ago, that won’t happen unless congress stops spending as they are.
Congress spends money into the economy and the excess spending during Covid helped get the inflation rate to 9%.
“The minutes are as expected. The Fed wants to walk back ideas that it will soon cut rates, but with limited success.”
That’s the problem with Gaslighting through the open mouth committee. The FED is gaming the market, doing that. The FED shouldn’t be manipulating the market. It destroys trust in the system, as the FED creates false expectations. The market fell into August 2014, then Bullard goosed the market, saying that QE shouldn’t end. Went to a new all time high, then QE ended and Japan took over, with Bullard then saying he was misunderstood in August. No, that was market manipulation by Bullard.
The Federal Reserve says they are independent from the government. We should be at 6.5-7% interest rate to bring down inflationary prices.
Wars are cause of inflation.
We have two now.
Price of oil and other goods coming through the red sea will need to rise
We “only” have 5/6 now PLUS 2 very expensive proxy wars. It was 7 active wars until Trump pulled out of Syria and then the treasonous milley secretely kept a few black sites and forward bases in country in defiance of Trump so magically we are still there and fighting and unknown enemy. Then the woke military blew the exit from Afghan. So yea that still puts the US/Nato in 5/6 active wars. But the propagandist have most thinking the only 2 wars are the proxy wars in ukraine and Israel.
Inflation is still not under control and they’re promising rate cuts ? They created this monster by lowering interest rates to a 300 year low. I’m not a conspiracy theorist but I sure can see an agenda that blows off all of this debt created with almost free money and wipes everyone out. The Federal reserve has already stolen the labour of millions of people trying to save, invest and retire. Much like the uncontrolled immigration on the southern border that is killing the labour and housing market and stealing billions of taxpayer dollars through unlimited supports and benefits.
Ding ding ding. This is a winner. The FED hates “us” along with congress. They say F U every day. When will the citizens stand up is the question….
Meanwhile the Middle East is a powder keg. If that powder keg blows welcome to $200/ barrel oil…
“inflation was still well above the Committee’s longer-run goal and that a risk remained that progress toward price stability would stall”
If unemployment claims don’t accelerate up to 250K by the end of March, there will not be a meaningful slowdown of the economy in ’24. A year ago, IT layoffs pushed unemployment claims “briefly” up to about 265K and then rapidly declined over the next 6-8 weeks.
30YFRM still has room to move notably below 6.5% over Q1, with the Fed’s continued ambiguity over rate cuts. Housing sales are going to stabilize over Q1 and will move higher adjusted for seasonality as we move through the spring.
The Fed likely stopped 50-75 basis points short of what was needed to ensure the economy hit a mild recession that could have pushed core PCE inflation towards to the 2% fed target.
There’s still too much federal deficit spending & elevated property & sales taxes for the final mile of inflation to be tamed. As has been the case for more than six months now, I believe a recession doesn’t arrive until ’25.
And, despite all of the doom & gloom around housing, there’s still an overall construction boom (residential & commercial) still going on. We’re just not going to have a recession with so much construction happening. The Fed knows this, and so privately they’re VERY concerned about inflation turning north again just like it did in ’74-76.
I can’t vote, but I’m saying 8 easy… the bond market is clearly shouting that rates will be down at 3% or just under by the end of 2024 and then only start to rise again in 2026 after a false dawn in 2025. The 2030s look like being absolute carnage.
Rates will fall to accommodate all the debt. The real inflation will continue even faster to accommodate the real depression it causes.
but price rises are not inflation nor real inflation… they are synthetic scarcity driven by idiotic interventions and pointless policy. You need credit creation and some growth to trigger it, to get actual inflation of the money supply credit note valuation.
Yes. And so it is.
FED can diddle with short rates but they just follow private rates for longer terms. So if they are cutting rates, or think they are cutting rates it’s because they think the economy is tanking. Shorts historically drop, and drop a lot in a full on tanking. So lowering rates is a bad sign historically-that means the economy is sunk
Depends on why interest rates are declining. Not all declines signal trouble, for example the long bull market in bonds post-1980s.
That said, long rates are likely too low and short rates likely too high. If I were a bond trader, I’d be long a 2s-10s bull steepening trade. On a 6 month HICP basis, once you take out OER (which is kind of a weird number that’s declining in real relevance now that we have a lot of SFR product) and the rural population (ignored in CPI-U), inflation over the last 6 months is behaving well. Both TIPS and inflation indexed swaps are pricing 2.3(ish) forward inflation. Likely means short rates are a tad high. But 6 cuts? Doubt it. The market’s a bit ahead of itself – and based on recent trading the past few days is unwinding the excess optimism on rates (i.e. pessimism on the economy).
I expect a few rate cuts next year beginning in March due to an election year. Inflation will significantly increase but the governments BS numbers will show inflation is down. Even if rates are cut .50 point houses are still not affordable for the majority of the public. Housing transactions are down but prices are still high. Many people couldn’t qualify for a 5% mortgage with increased housing prices along with increases in property taxes and property insurance. Condos in our complex are still seller higher than the asking price. We haven’t even put our condo on the market yet and we have a buyer interested in making a cash offer.
yeah, there are enough months between March and November to have 8 cuts – to “take pressure off hard-workin’ americans” just in time for the election, but the avalanche of layoffs will crush all that, and it will be down to what they do to Trump.
RRP gap lower to 720B, a higher low, the widest wildest gap since Dec 30 2022 dressing. Liquidity is back.
You are totally deranged and economically illiterate.
Once Biden has suckered the interest-loving older voters to voting for him in November, he’ll have to cut rates back down to zero to remove interest from the $34 trillion debt. Just a question of timing, but collapsing rates are gonna happen.
Scott, older GEN Voters, at least the ones I know (depends on how you define OLDER) are all Biden haters. This is EVERYWHERE we travel, and we travel FULL TIME.
Most voters are going to be voting with their pocket book. Voters may hate Biden and Trump but there will be more votes for whoever the Republican nominee is as they’ll be voting for change.
They’ll be voting for or against the maga moron cult. Nothing else matters.
Lots of moving parts here. Do rate cuts mean an end to QT? What happens to the reverse repo program for money market funds and the Bank Term Funding Program?
Likely QT continues, Regardless, the question stands as is.
But, the more cuts the less stress on regional banks.
Mish, does the FED care about the regionals? If they fail, they are scooped up by Jamie Dimon….for pennies on the dollar, and then he reduces liabilities by taking all of the Deposits. A BEAUTIFUL THING. Beautiful for JD.
I think, Jerome went to see his doctor after the last bank run with SVB, and was advised low adrenaline lifestyle. Don’t think they will let another mom-and-pop bank to fail.
It’s all baked in, as the bond market and shadowbanking “eurodollars” system tells us.
RRPOs are down to almost $700B and continue to drop rapidly. The real question is how far can they drop before there’s a liquidity crisis. Remember, a lot of the debt over the last 12 months has come from the RRPOs monies seeking higher yields. With $1T in debt to occur this quarter, there’s a really good chance this happens by the end of Q1. The great thing about QE (for the Treasury) is that it stashes extra liquidity into MMFs that is used to fund government debt while QT is rolling along. It’s literally the foundation of Modern Monetary Theory.
I don’t see QT slowing down. The Fed wants its balance sheet to get down to at least $6T (currently ~ $7.7T) within 12 months. They know a recession in ’25 is a very real possibility, and they want to make their balance sheet is a low as possible before QE ramps back up.
The BTFP isn’t going anywhere. The Fed knows it’s going to, for now, stop the next run on banking.