At the risk of looking silly, I think the market is wrong about the odds of a Fed rate cut in July. Let’s discuss why.
The June Fed meeting is a week from now, June 12. The market view is a 99.7 percent chance of no change with a 0.3 percent chance of a hike.
10 Reasons Why a Rate Cut in July
- In general, data is weakening across the board. Real disposable income has been negative in two of the last there months.
- The BEA made a large negative revision to GDP and GDI.
- Consumer spending took a dive in April and I expect it will stick this time.
- Terrible reports from Target and Walmart on discretionary consumer spending.
- There have been numerous negative revisions in most of the recent hard data.
- Job openings are plunging.
- The GDPNow forecast is plunging fast.
- I finally expect rent to break the string of 32 consecutive months of rising at least 0.4 percent.
- The July meeting is nearly two months away, on July 31. There is plenty of time for further economic weakening and that is what I expect.
- There is no meeting in August. If the Fed is at all concerned about slowing, but not wanting to risk being too late (not that it will matter, but that is how the Fed thinks), the Fed will find a reason for a July cut.
What Will It Take?
To cut rates, the Fed will need some combination of weak jobs, rising unemployment, and improving year-over-year inflation.
There are two chances for a poor jobs report. The Bloomberg Econoday forecast for May is 195,000 jobs. That report is in two days. The July jobs report is on Friday, July 5.
There are also two chances for improvement in the CPI.
The BLS will release the Consumer Price Index for May 2024 on Wednesday, June 12. There will be another chance for enough improvement to satisfy the Fed for the June report released mid-July.
Dramatically Weakening GDPNow Forecast
Weakening Hard Data
May 24: Another Massive Revision, This Time Durable Goods, What’s Going On
May 23: New Home Sales Sink 4.7 Percent on Top of Huge Negative Revisions
May 22: Discretionary Spending Tumbles at Target, Shares Drop 10 Percent
May 22: Existing-Home Sales Decline 1.9 Percent, Sales Mostly Stagnant for 17 Months
April 15: Elon Musk Fires 10 Percent of Tesla Workforce, Prepares for “Next Phase of Growth”
A Second-Quarter Recession This Year Looks Increasingly Likely
This morning I commented A Second-Quarter Recession This Year Looks Increasingly Likely
As I watch the evolution of consumer spending, housing starts, new home sales, and GDPNow trends, it appears the economy has peaked.
A rate cut is consistent with weakening data as long as there is further improvement in the year-over-year CPI and/or weakening jobs.
Finally, if the Fed is looking to cut rates before the election, there are only two chances, July and September. There are no Fed meetings in August or October.
Important note: This does not change my long-term inflation forecast. The Fed will struggle to keep inflation near 2.0 percent. I will do a follow-up on this idea.
Luckily for everyone under 65, the central economic planners in the Eccles building have stopped listening to retirees like Mish who think every problem can be solved with more so-called “debt” that will never be repaid.
Too much debt is the problem, not the solution.
Just remember: Powell’s job is to limit the loss in value of the dollar to “only” 3-4% per year, not to listen to senile retirees who don’t ever repay their debts.
I think we see a rate cut if not this quarter, then next. Longer term, I think rates are going to zero one more time, and possible even negative. I think this train MAY have one more run in it, figure 5-7 years, before it goes off the tracks permanently. I’m hoping, anyway. Collapse will not be fun.
From just released ECB policy statement.
“The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission.”
the key words “returns to its 2% target over the medium term”
Inflation fighting no longer number 1 priority. This is second CB in two days starting to can kick on inflation.
The softening economy is being watched.
Question in my mind, if soft landing such a sure thing why cut back on fighting inflation?
Especially for ECB which has one mandate that being 2% inflation.
Oh look! Mish is changing his mind!
The simple answer is, what is the bond market doing? If yields fall, rates fall, simple.
I agree – Let’s start “mouse-clicking” trillions of fake dollars out of thin air (again).
It worked so well before …..
It didn’t happen before – bank reserves aren’t currency in the real economy; creating bank reserves isn’t creating dollars out of thin air.
Despite many of us having opposing political biases, it seems like without even noticing, we can all agree then that the Fed will continue to aid the enrichment of the wealthy and avoid policies and actions that would actually be helpful and productive for a large portion of the US population. Rate cuts would be a great example of this. Accountability and individual merit seem to no longer be part of our values.
If I could choose only one simple single saying to best encompass the current state and mode of operation of American society it would be…………
“Fuck you, I got mine.”
There is another cynical saying I picked up from someone who was much older than me at the time years ago that always re-emerges every so often as I am going about the course of my life which is…..
“No good deed goes unpunished.”
The enrichment process is inversely correlated with demographic decline; as is the rise in debt. I.e.: the system is breaking.
I agree Mish. No reason to wait too long.
Another reason to start cutting now (although not necessary to take an elevator down), is that beginning to cut, and showing the willingness to cut, will begin to “unlock” the housing market.
All of these homesellers that don’t want to sell because their new rate will be so much higher than their current rate, might be more inclined to sell if their new mortgage rates get down to 6.5 percent or lower. And, once the housing market is unlocked, that will provide an overall economic stimulus with houses moving and buyers doing the necessary work to their new homes (Think Lowes, Home Depot, Floor and Decor, Restoration Hardware, etc).
While the idea that the higher rates the Fed has embarked on would slow the economy and thus reduce inflation has been conventional wisdom, there is a common sense “other side” to that. Higher rates have made things MORE expensive (houses, corporate capital investment, cars, etc.). So, lowering rates will not only stimulate the economy, as per above, but, should actually reduce inflation by making business cheaper to “do”.
The problem with your thesis is that it completely ignores the economic, financial, and housing market impact of massive illegal immigration.
How does massive illegal immigration affect this thesis? Expand
Is the Fed prepared to throw the inflation fight away and with it their avowed 2% target?
They have not even come close to target as of yet.
Anything is possible but this would end any semblance of credibility.
They gave in some by cutting back rate of QT which bolsters liquidity.
Markets marking near all time highs, unemployment not jumping dramatically, Housing costs still rising. This has never been backdrop for lowering rates.
There is no inflation. Price rises are not inflation. Current price rises are government engineered scarcity; e.g.: mass illegal immigration, to name one cause.
Loss of purchasing power under Biden said to be 20%
Wages have not kept up with this level of fall in living standards.
People are not immune to this occurrence.
People are not interested in how it happened only how it affects them directly.
Average person has no control over the Why it happened part.
This completely sucks for the debt free saver$/retirees that are in US treasuries/CD’s and/or MM accounts that have been happily sitting in ‘risk free’ assets yielding roughly 5.3%. For the first time in 15 yrs, savers have started to receive some kind of tiny return on their $$$. But now once again, we have the probability of getting blown up. Has anyone looked at the amount of $$ that is currently parked in these accounts? MM accounts are around $6 trillion (by my last google check). If the FED cuts rates, yield chasers are going to be forced into the Stonk market at “all time” highs (once again) chasing some type of yield. Let’s blow this stock market “to the moon.” MM funds are going to see outflows into the stock mkt bubble just trying to keep up with inflation. It seems to me the mkt is forecasting said rate cuts and plowing to all time highs frontrunning this exact scenario while inflation is maintaining its upward bias. This is no bueno. It is absolutely astonishing to me that at (the effective fed funds rate) of 5.33% we are slowly going toward a recession. Are you effing kidding me!? Our economy can’t handle 5% rates!? What in the hell? I call B.S. Look at the following 70 year chart of rates: https://fred.stlouisfed.org/series/FEDFUNDS. Looks like rates are trying to normalize after a 40 yr bond bull. The cost of borrowing should not ever be ZERO unless we’re in a catastrophic depression. Apparently the USA economy needs 0% cost of money to survive. SAD.
They don’t have to return back to zero for goodness sake. Just begin slowly lowering by a quarter point, and maybe take the Fed Funds rate down to 4 percent over the course of a year. You’re absolutely right about “normalizing”, but, nothing wrong with going down a bit.
You don’t need to do either, you can do gold, or swiss francs if you want cash ready.
The FED rate decision is very simple: it follows the bond market. With interest rates near 4 year highs, the Fed is not going to drop rates. I’m anticipating the 54 month interest rate cycle low to arrive in the September/October timeframe. That’s the most likely time for the Fed to lower rates. The Fed doesn’t want to guess wrong either way, so it follows the bond market.
Hooray! At least someone here gets it.
That’s funny. The bond market is broken and completely devoid of any and all bond vigilantes. It merely follows the FED. Look at EVERY FED meeting the last few years and watch the WILD bond moves as it attempts to figure out the FED
If the bond market is no longer a sign or signal of anything except a follower of the FED……. just like everything else in the synthetic hyper financialized ponzi world
American Airlines fight attendance last contract was in 2019, before covid
1) 1M SPY might rise beyond Oct/ Nov 2024, in stepping stones. The market will do what it wants to do. The Fed is on hold waiting for data.
2) 57Y ago on June 5 1967 in the Six Days War Israel beat Egypt, Syria and Jordan. The 98 division is back in Jasa mopping up the ctr near the evacuation area. Hamas tunnels might split with Hamas Qatar/Turkey 5 stars hotels bc they cannot take it anymore after 40,000 dead and total destruction. The Palestinians might write off Santa Anna.
3) Israeli Arabs children were hit by 2 drones from Lebanon while playing soccer.
Unemployment is under 4% and The DJI is near 39k. People in my neck of the woods are all driving new cars (this is easy to see by the progression of license plate numbers). Porsches, Teslas, BMW, Mercedes al seem to be very popular.
Inflation is nowhere near 2%. Even if it were, lowering interest rate swill only encourage more buying, which will increase it again.
I think the real driver of the constant calls to cut interest rates are Wall Street and the Commercial RE segment. SF has a 40% vacancy rate in commercial RE. Lower interest rates would make it easier to refi buildings or outright sell them.
“Even if it were, lowering interest rate will only encourage more buying, which will increase it again.”
BINGO! Any Fed cuts will encourage borrowing & spending, especially housing, on the premise that they should buy now and refinance later when the fed cuts again in the future. They will do this because the fear will be that housing goes to the moon again. It wouldn’t happen if there were mass unemployment but we’re not there yet and I doubt we will with so many people retiring.
No they won’t. Commercial banks have pulled back on lending massively, and it’s due to their risk assessment of default and lack of growth due to sustained abnormally high debt levels and continuing demographic decline.
Nowhere near 2% doesn’t mean Fed won’t have reason to cut. With inflation coming down, restrictive rates become MORE restrictive. The voting members may conclude that cutting is prudent to keep rates equally as restrictive.
Remember, it’s hard for them to thread the needle, and they need to front run cuts to stay ahead of the recession their rates will cause.
Just 3 weeks ago:
Would you trust Jamie Dimon with anything you value?
The deflation in the economy, and the continuing yield inversion is evidence enough of a lack of real growth in the economy, which is one reason why commercial banks have reduced lending and raised the bar for loans. Commercial property is in bad shape, partly due to technology facilitating corporate cost-cutting, as well as reducing consumer spending, due to the many government-created reasons for the (world and US) economy to be under sustained stress .
Data from Standard Chartered bank shows that almost all job creation has been to illegal immigrants. American labour participation is the same as in 2018 now. Inflation is negative, i e.: deflation, as demographic decline continues. Price rises are not inflation, they are govt created artificial scarcity.
I see two typos in Mish’s report. Are there more?
1- “The BEA mage a large negative revision to GDP and GDI.”
I am betting that the verb is “made”
2- “The July jobs report is on Friday, July 5.”
I am betting that’s the June jobs report.
I wouldn’t be surprised if the Fed announces when the July meeting is done that they will meet again in August out of concern for the economy.
The Fed is government dirigisme over the economy and economic borrowing. We need some way for the market to set interbank rates, instead of the Fed. What would Walter Bagehot say if he could look at the conduct of ours or Canada’s or his beloved Bank of England’s recent history of conduct?
I’d tend to agree with MIsh. I don’t see inflation coming down enough to warrant a cut but it’s beyond clear that the elites in charge have no desire to see a return of a Trump II presidency. I expect a poor jobs report to give the feds cover in July. Gold should do well over the next few months.
It’s funny that people still buy into this whole staged act of puppets pretending their side is good and the other side is bad when both sides are controlled by the self-serving wealthy who dictate their policies through think tanks and lobbying (bribes). Trump is as much of a puppet as is Biden. Each time people get fed up enough with poor government and dishonest policies of one side, we get served up with a puppet from the other side who will ram through policies that are stereotypical of their side and in the mean time plots are being made to ram through wealthy-servicing policies of the other side when the commoners have had enough and are goaded into ‘electing’ a new hero from the fake opposition.
There’s far less control over the animals in the jungle than most people believe. Most behaviour is reaction and then pretending you planned it all along.
I like this side of you Mish. My vision sucks, maybe yours is better. Regardless, I’m in $TMF. Not sure it’s the best, but should be decent if rates are surprisingly reduced. I think you are correct. We’ll see. Who knows, we might even make some money? Or get kicked in the teeth. Such is the monster.
Quite likely, and #1 reason is real rates rolling over while markets topping. Fed chases / lags real rates; Fed has never set rates and can’t set rates. Inversion soon unwinding, and that’s all it takes.
Typo: “ The BEA mage ”
Correct.
Biden and his ilk cannot cut off the older voters who love getting some interest for the first time in 15 years. After whoever wins, then theyll cut, and it will be a drastic cut in 2025.
Nope. Making small cuts won’t drive interest back down to Zero but it will take some of the stranglehold off the housing market / trapped people who want to move but can’t because of the high mortgage rates.
Also Credit Cards are at a ridiculously high rate for borrowers who aren’t top tier.
More people need relief now than two years ago.
Most of those in financial distress are not going to be saved by a tiny rate cut.
Mohammed El Erian is also calling for a July dove.
Jerome got the call!
If this prediction is correct, it will be for political rather than economic reasons.
Nah, Fed historically is TERRIBLE about raising too late and loosening too late. Fed should be SLOWLY taking interest rates down BEFORE the job market and Commercial RE markets crash.
Not saying they WILL do that…but they should do smaller and slower on way down.
Whatever the central banks do, it will be wrong. Mainly because they haven’t got a scooby about economics and finance.
American Airlines offering 17% raises to flight attendants. Don’t think they would be doing this if demand were waning…
https://finance.yahoo.com/news/american-airlines-offers-immediate-wage-170749466.html
American Airlines has offered its flights attendants immediate wage increases of 17% and a new formula for higher profit sharing in 2024 in their new contracts, CEO Robert Isom said on Wednesday.
Here are some interesting stats on flight attendants.
The median annual wage for flight attendants was $68,370 in May 2023. The median wage is the wage at which half the workers in an occupation earned more than that amount and half earned less. The lowest 10 percent earned less than $39,580, and the highest 10 percent earned more than $104,100.
Employment of flight attendants is projected to grow 11 percent from 2022 to 2032, much faster than the average for all occupations. About 16,600 openings for flight attendants are projected each year, on average, over the decade. Many of those openings are expected to result from the need to replace workers who transfer to different occupations or exit the labor force, such as to retire.
source: https://www.bls.gov/ooh/transportation-and-material-moving/flight-attendants.htm
Good data. Commercial aircraft cannot legally fly without flight attendants. I am surprised they make such a low salary for what they put up with and the risk they have to manage. I’ve seen some horrible behavior on flights post Covid by passengers.
Are you his sock puppet then?
Don’t forget that pilots on all the major airlines got something like 40%+ pay boosts last year when inflation was soaring.
Is there a surplus or shortage of pilots?
Apparently the airlines thought it easier to capitulate to their demands than to hire and train a new batch.
…and you are probably projected to get 11% smarter by 2032. Anyone can “project” or extrapolate anything if they try.
5 of 6 flights in the last 4 weeks were only 50-60% full. 2 of the flights needed passengers dispersed “10 in front, 10 in the middle and 10 in the rear of the plane”
2 domestic airlines are offering BOGO for $10 extra for the rest of 2024
So there is your demand…..
Believe whatever you want but it doesn’t make sense to give 17% raises to people you don’t need.
Maybe American is 17% under market pay and this is to catch up? I don’t know
I know it isn’t passenger demand driven because passenger demand is falling drastically. I’ll let you know when it’s under 20 people on the plane like 2020 where I was gone to free states and free countries every week
Data! Data! Data! Data don’t lie only people do.
https://www.tsa.gov/travel/passenger-volumes
So naive, there’s plenty of fake data, and mangled data. Take CPI, for example.
See McDonald’s for details… And those unionised car factory workers – what happened to them after the pay rise?
Stop flying to crappy destinations. My previous two flights were packed. There’s a TON of demand and people are flying both for Business again and travel vacations.
🤣😂🤣😂 david hogg is that you again?
Airline travel is always up during the summer months. Also, people previously purchased these tickets. Look to see what NEW airline ticket sales are starting this fall. Part of the reason the pay is higher is there were many employees in the airline industries who chose to get fired/retire, etc as they refused to take the vaccines. You also have those that are on disability, etc. due to vaccine injuries.
Nothing to do with Vaccines. Stop peddling nonsense. LOTS of older Flight Attendants retired or retiring because idiots forgot how to act on Airplanes. The absurd behavior by brain damaged or emotionally damaged Karen’s forgetting that people need to behave when they’re locked in a metal tube traveling 500 miles per hour. The number of travelers has skyrocketed over the past three years.
Maybe in developing countries like America, but much the rest of the world is more civilised. All of you are partially wrong.
Hehe… After the pay rise, comes the layoffs, see McDonald’s for details. How many people are paying+20% more for flights?!
The FED needs to raise .5 in June and again in July. Believing the inflation is anywhere close to being under control is moronic. Among numerous mistakes made, the biggest mistake was pausing the raises. The second biggest mistake is giving Powell the microphone. His words have done more damage to the inflation fight than anything else.
But let’s be honest. The elites don’t really care about inflation. Neither does Congress. Or the Treasury. Or the FED. High inflation is the way they get (partially) out from under the debacle they have created.
No rate cut is warranted. But it’s likely to happen. Because the FEDs only real job is protecting Wall Street. And when that job is done their second job is saving Yellen’s sorry butt.
The FED has a trading desk. They buy all the debt. And they buy the market. It’s all fake. All of it.
Raise rates? I hope this was meant as a joke. There’s a much stronger chance of these restrictive rates causing deflation than inflation accelerating. Shelter and auto insurance were 2.20 of the 3.4% y-o-y April CPI. New and used vehicles are dropping, so the insurance increases should get some relief. Shelter can only go so high before RE breaks.
After those two finally stabilize we might go back to low inflation, low growth for another 15 years. Heaven forbid congress only stalls spending let alone cut a little. If they would then rates going back toward 1-2%.
I’m personally rooting for deflation just to read Mish. His work on gold and deflation is some of the best financial stuff ever written.
More automation/robots/AI = more deflation.
Eventually yes, you’re correct. However the US and West needs to move more strategic industries back to North America, which will cost tremendous amounts of money and cause some inflation until that volume can get even close to replacing Chinese / SE Asian manufacturing.
That cost will be paid for by debt, which compresses the national budget. There is no spare disposable income for tax rises.
Absolutely, and demographic decline too, and rising debt compressing the national budgets of developed nations.
Deflation already won, 1-0, but the data is being obfuscated and masked with garbage and lies.
Silliness in understanding the economy. There’s a major Commercial Real Estate Correction coming because rates got jacked up too quickly.
Now the rates are too high for holders of credit card debt, adjustable rate mortgages and other financial instruments that are subject to being hiked.
Time to drop rates very slowly and very slightly to enable more liquidity in the housing market and less stress in the CRE market and Commercial Banking.
Already too much combined stress on people living paycheck to paycheck and middle class.
Price rises are not inflation.
Inflation is where credit extension by commercial banks (creating money supply) increases at a faster rate than the economy grows. Credit creation is in decline, money supply is in decline, GDP is in decline, birth rate is in decline, debt is rising. There is no inflation, only deflation and Government policies over recent years like lockdowns, sanctions, netzero, illegal immigration, all driving prices higher, not “inflation”.
Yes, agree, a July cut and a little pump to the bubble; lest the PPT is needed near the election as CRE losses, layoffs, etc, build up.
PPT looks to Main Street like a Wall Street bailout … wait until after election for that.
PPT = Plunge Protection Team created by the hero of the rich, Ronald Reagan, as E.O. 12631 aka Working Group on Financial Markets.
Of course! With Brandon tanking in the polls against President Trump, I expect this corrupt government to pull out all stops in order to stop the bleeding and make it appear things are good.
Lowering rates .25 – .50 isn’t going to do ANYTHING to the economy except cause higher inflation. Costs for services won’t decrease. Insurance costs (health, homeowners and auto) won’t decrease. Lowering rates because of an election year will probably back fire as seniors vote. The majority of the people with assets are older and looking to get a higher rate of return on their assets.
Equities and risk assets will pop up briefly with a rate cut. Bonds will drop because, yes, inflation will return but …. wait for it … not until AFTER the election.
It’s all about winning during voting season (Sep-Nov).
Wrong. It loosens up the Residential Mortgage Market. Some people feel trapped in their current homes OR have Adjustable Rates coming due soon.
Commercial Real Estate is a MESS for Office, Retail, etc. Those can cause bank failures and / or severe issues in the economy. Credit Cards are very high for lower income and middle class borrowers, who need relief.
The Fed rarely makes moves that are a good forecast but crashing CRE, banks and the middle class is NOT beneficial.
Applying for a loan doesn’t mean you get one, just like applying for a job or promotion. Banks may not lower rates in response, as they are losing on commercial real estate and need to take defensive measures to protect themselves from getting into difficulties.
They’ll be watching Canada self immolate with their rate cut and then they’ll panic.
I expect at RAISE of 100bps with another 100bps announced before the end of the year. I expect them to commit to running off their illegal “balance sheet” by the end of 2025 to ZERO.
They have a chance to fix the 100%+ compounded inflation they caused and correct a lot of wrongs by doing this……… which means those fukin criminals will do the exact opposite because their #1 and ONLY mandate is to pump the ponzi fraud “markets” to the moon.
They don’t give a shit about regular people and openly and clearly HATE the bottom 80%. I look forward to them on the gallows at some point in my lifetime. Would be appropriate and justified
They didn’t get where they are on their morals. Expect more chicanery. I hear Rearden Steel is selling at cost these days. You and I won’t live to see a reckoning.
Step away from the Bottle Angry One. Crushing the economy with stupid overreacting policies is as dumb as it sounds. Rapidly increasing interest rates was stupid a couple years ago and it would be stupid now.
Rates should be raised or lowered in smooth and well thought out measures and should NEVER have been jerked up 500 BPs simply because they waited YEARS too long to begin raising rates in a slow and steady manner.
For rates to rise, money has to be pulled from the bond markets, which is what Chiba and Japan are doing to liquidate and sell USD to defend their currencies. At the moment, this is neutralised by money moving into bonds from elsewhere; eventually that may stop.
The only HATE is yours. You’re too afraid to invest, and hate everyone who does so successfully.
You are “hoping” for rate increases and a severe depression and market collapse in order to drag others down to your level of misery.
Which isn’t going to happen.
And if it comes to pass, you will defend yourself throwing balled up $100s at the common folk which im sure will work. And then you will die with no legacy and a casket full of cash.
That’s “winning” for you
You must not read much of what I post here. I value my health, wealth, friends and family; and I frequently mention that. But I am not here to talk about my health, friends and family. This is a financial blog and that is what I am here to discuss.
While you are here to whine, bitch, complain and blame others for your lack of financial success. And to hope that successful folks end up failing like you do.
I’ve hit homeruns nearly every year since 1986 in these “fraud” markets so GFY. I know these ponzi fraud very well. I just choose to see how devoid of common sense and devoid of moral clarity and devoid of fundamentals and devoid of naturally occurring cycles it has become since 2008. I choose to call it what it is and be honest about it even though I have benefitted. You see I care about my future legacy and offspring and want REAL markets and REAL opportunities and REAL prices and not the manipulated bullshit tou think makes you some kind of great investor. We all have the luxury of being in the right place at the right time and throwing money in and watching it go to the moon for no sensible reason.
You may be bill ackman in cognito because I have never seen a such a self centered, irritatingly selfish, braggadocious asshole on social media like you…… and actually ackman may have more humility.
> At the risk of looking silly, I think there is 0% of a Fed rate cut in July.
Perhaps right before the Election, a “Political Bump” could occur, but ill advised imo.
10 Reasons Why a Rate Cut in July:
– Real disposable income has been negative in two of the last there months.
> Agreed, and a good reason not to cut imo.
– The BEA mage a large negative revision to GDP and GDI.
> I trust no Government Data now days, unless 100% Verifiable.
– Consumer spending took a dive in April and I expect it will stick this time.
> Agreed, and another reason not to cut.
– Terrible reports from Target and Walmart on discretionary consumer spending.
> See 1. above
– There have been numerous negative revisions in most of the recent hard data.
> See 2. above
– Job openings are plunging.
> Agreed, and another reason not to cut.
– The GDPNow forecast is plunging fast.
> See 2. above
– I finally expect rent to break the string of 32 consecutive months of rising at least 0.4 percent.
> Needs to be much Larger %
– The July meeting is nearly two months away, on July 31. There is plenty of time for further economic weakening and that is what I expect.
> See 2. above
– There is no meeting in August. If the Fed is at all concerned about slowing, but not wanting to risk being too late (not that it will matter, but that is how the Fed thinks), the Fed will find a reason for a July cut.
> Not yet, but a purely Political One soon enough will be here…
What Will It Take?
– To cut rates, the Fed will need some combination of weak jobs, rising unemployment, and improving year-over-year inflation.
> They can simply make that up, so it’s meaningless (See 2. above)
– There are two chances for a poor jobs report. The Bloomberg Econoday forecast for May is 195,000 jobs. That report is in two days. The July jobs report is on Friday, July 5.
> They can simply make that up, so it’s meaningless (See 2. above)
– There are also two chances for improvement in the CPI.
> They can simply make that up, so it’s meaningless (See 2. above)
– The BLS will release the Consumer Price Index for May 2024 on Wednesday, June 12. There will be another chance for enough improvement to satisfy the Fed for the June report released mid-July.
> They can simply make that up, so it’s meaningless (See 2. above)
If you’re waiting on a Data Driven Cut, then they can pull that off easily at anytime, but now it’s not nearly as much good, as it would be in September/October time frame. They play with the numbers all the time for this very reason (Political), as well as a host of other Data. They will have to wait, due to polling until closer to the Election as a result IMO…
– Finally, if the Fed is looking to cut rates before the election, there are only two chances, July and September. There are no Fed meetings in August or October.
> They will obviously call one…
A little lengthy dont you think?
I was answering the questions posed to the readers. You can pass, but I like to be informed and to inform, but most importantly, Discuss Opinions.
But no one is gonna read it. We write to persuade others, not hear ourselves talk.
Unreadable.
Mish- on your point 10 of rate cut reasons. As far as I know, the Fed can cut or raise rates any damn time they want. Scheduled meetings don’t matter. It is, unfortunately in my opinion, just the way things are done now.
Thanks,
J.
Yes they could call an emergency meeting. But they won’t unless there is an absolute disaster.
They will be accused of election interference if they do.
We would need a 2008-like meltdown for that. It could happen. But they’ve institutionalized bank bailouts and they aren’t even public anymore. There is no act of congress even necessary for the backstops to happen.
they will be accused of election interference if they do anything – cut or hike – at any point before November… which is exactly why rates will remain exactly where they are.
we are well past the point of avoiding accusations of election interference, Mike.
This sounds plausible. In reality the bond markets are waiting for the election(s) result(s) and hence, so are central banks.
They ONLY call emergency meetings when banks, IBs, trading desks and MMs are in trouble from maximum risk positions and being on the dangerously LONG ONLY side of things. Then the bailout come immediately.
If it’s massive inflation crushing the common folk, they will ignore it for a year and keep doing emergency QE. Then they will call it transitory. Then they will act and jawbone how important it is for them. Then they will jawbone more and say they know the pain of the bottom 80%. Then they will slow it way down and jawbone some more. Then they will juice markets when it drops then they will pivot and markets will moon as the common folk get liquidated and have to take emergency loans to stay above water and pay bills over 4 years later.
I got to be honest Mish, I don’t see where they care about that in the least. Do You?
I would add a terrible report from Apple on consumer spending. Sales fell $4 billion in the latest quarter. Ouch!
But the stock is at all time high! Bad news = good news in today’s world.
It’s all stock buy backs. These are terrible economically but awesome for the employees that hold options. The buy backs should be taxed at 15 or 20% as the only reason investors like them is making what should have been dividends and taxed as such, qualify for capital gains taxes.
Many of the oil and gas companies I own shares in are generating huge cash flows. Just “some” of that is being invested in maintaining or expanding reserves and production, because they already have enough of both. Particularly since they don’t want to invest in new assets that may become stranded in the future.
So; what to do with that growing free cash flow? Many have already paid down, or even paid off their debt. Then what? Many are committing 50% to 100% of that excess cash to shareholders. This can be dividends or stock buybacks. I own a lot of Canadian oil and gas firms. There is a 2% buyback tax in Canada. There is a 1% buyback tax in the US on some firms. If those buyback taxes get raised, then the companies will likely reduce buybacks and raise dividends. Either way, the shareholders benefit. I am agnostic as to how I get that cash.
Absolutely no way they cut in July. None. Not happening.
Thanks. I’ll make a note.
Canda announced a cut today. Chances are higher than you think.
Rising for sure but we must remember the world is doing worse than the US economically.
Unlike the US, Canada has an interest rate problem because Canadian mortgages aren’t locked in like US ones are. They renew every 5 years (or are variable rate).
If Canada didn’t lower the rates and doesn’t continue lowering them then there is going to be a disaster in another year or so.
Agree. The BOC governor said that he expects to continue to lower rates going forward. Though he could not say how quickly that will happen as it depends on the data.
Saw an interview with 3 Canadian bank CEOs who all “expect” another 5 or 6 quarter point rate cuts in Canada over the next 18-24 months.
To me, this means that the Fed is unlikely to raise rates, as some suggest and is more likely to stay the course, or lower rates as economic conditions weaken. My “guess” is two cuts this year and 2-3 cuts next year.
From an investment point of view, if Canada does continue to lower rates and the US holds steady then the Canadian dollar is going to fall like a rock.
If one likes to play the currency markets it’s a potential opportunity.
Which is why Canada can only cut so much. They do not wish to see their currency fall too quickly.
I will benefit from a lower C$ because it improves the profits of the many Canadian oil and gas firms that I own.
you lose on FX conversion assuming you live in usa
I think you’re ahead of your skis just a bit. I’m doubtful because of the comps rolling off are bad for next couple months.
May, 2023 PCE Price : .1
Real PCE: -.1
June, 2023 PCE Price: .2
Real PCE: .4
July, 2023 PCE Price: .2
Real PCE: .6
While the spending comps might look okay outside May, the PCE won’t if the last several months trend holds. We need flat M-O-M PCE for possibility of a cut.
After this, comps are good for Aug, Sept, then drop off 2 months before becoming middling again. Which is why cutting is expected late in the year.
You forgot one: there is a presidential election coming up in November..
It’s a well thought out rational and logical argument on why the Fed should cut in July but the Fed never acts logical or rational so I don’t see a cut happening in July.
While everyone will be looking at the jobs report, I will be looking at the social security snapshot to see how many more people signed up for SS this past month. The new numbers will show how much more beyond $120b/month of money is being handed out. Those new enrollment numbers serve to “offset” any layoffs or job cuts.
I have been looking at copper and lumber charts and they are both moving down so demand is waning a bit but price is still elevated.
Are you also looking at numbers of SS recipients coming off? At some point, the enrolment numbers should peak and reverse. Not sure when this might happen.
That’s the thing, the numbers don’t ever go down.
It will be years before the peak happens because that won’t occur until most of Gen-X is getting SS
The earliest members of Gen-X will start collecting in 5 years so I’d venture it will be on the order of 10 years before it peaks.
Not even close. SS is a pittance compared to people who retire or are laid off and decide to retire. It crushes GDP and businesses ability to function efficiently.
July is too late to help the democrat presidential candidate win.
The average voter doesn’t know that and markets will be euphoric over it. Nowadays the markets seem to be the most important single metric for gauging the state of the economy
I don’t expect a rate cut. Policy is getting back to normal after 2 decades of low rates. If we go by 2 consecutive quarters of negative GDP as a recession, I don’t think we will see one just yet. I think summer consumption habits will help stave off a real recession. Powell should not cave and see what happens. Caving is what caused this problem in the first place (first lowering rates to 0% and then not raising them fast enough).
Not taking action soon enough is what caused this. Should have stopped QE much sooner and slowly raised interest instead of jerking it up too fast after NOT taking action for years.
Banks seem to be falling into the abyss. The US Treasury had to snap up their underwater longer term US Treasuries, ironically financed through the issuance of higher interest rate US Treasuries.
And,
“Total unrealized losses of $516.5 billion were $38.9 billion higher than the previous quarter. Higher unrealized losses on residential mortgage-backed securities drove the increase, as mortgage rates increased in the first quarter, putting downward pressure on the prices of such investments”
From: FDIC Quarterly Banking Profile First Quarter 2024
Agree. A good reason to cut rates.
Jack up Interest Rates by 500 BPs in a short period and you screw over the banks. It was piss poor management by the Fed for years previously and then SLAMMING on the Brakes.