Let’s see if we can predict what the Fed will say today whether the decision is to cut by a quarter point or a half point.
Half Point Statement
We have made considerable progress combatting inflation. Risks to our dual mandate are more skewed toward an unwelcome weakening of the labor market than an unexpected and unwelcome rise in inflation. Since there is no meeting in October, and since the path of progress suggests we would cut in October if there was a meeting, the committee felt the prudent course is to act in advance now. We are not embarking on an automatic path that will cut rates every meeting. We remain very data dependent. Every meeting will be a live meeting. A rate cut in November is not a given.
Quarter Point Statement
The economy remains relatively strong. Retail sales and industrial production were better than expected. We have made considerable progress on the inflation front but the committee does not want to prematurely cut too much and risk an unwelcome return of inflation. The prudent course of action is to cut a quarter point now and take a wait and see approach for the next meeting.
Without strong conviction, I think the Fed leans toward a half point.
Just one question. Is the short end dropping because of monpol omnipotence, or because the economy is moving recessionary? Yeah.
The algos enjoy parsing Jay and the boyz, killing longs and shorts zigging and zagging. For economists who believe in the transcendence of monetary fiction, its very important. I think for many market participants who are not suckered by MSM narratives, the presser sounds like the teacher in Charlie Brown. Wah, wah, wah, wah, wah. Watch the reaction, and don’t get stuck in 5 minute charts.
– Half Point Statement
> They have not made considerable progress combating Inflation at all?
> Since there is no meeting scheduled by design, we can cut now, and call a meeting in October and cut again. 1BP coming right up…
> We are only going to cut until November, and then we will relook at things, if needed.
I realize historical wisdom tells us the Fed is behind the curve, but what if they’re not? What if they know war is imminent? Wars are inflationary and maybe the market doesn’t realize how desperately insane the Neocon’s really are.
I like the outline, Mish, but it does seem less vague that what they usually deliver.
I think the economy remains too buoyant for 50 BP.
I’m betting for a 1/4 cut.
Decades ago, the Fed was more in line with a shock-and-awe strategy. Let’s talk/jawbone little beforehand, meet for 2 days, and then decide what to do – knowing the real effects won’t happen for 12-18 months. If we want to ‘move’ the economy now, let’s shock the system with a sizeable cut or raise ‘out of the blue’. Then people will know we’re serious and move ‘accordingly’ now, not a year from now.
Now, the Fed is more in line with a ‘transparency’ strategy. We’re data-dependent, but this is where the data is currently pointing. We’ll meet in a month or two to make a final decision, but you know where we’re likely headed. But no need for big, serious market or personal moves now. You have time to adjust.
A quarter point cut makes that ‘transparent’ statement; people know the future direction has changed. But the major real impacts are a year+ out with only this change to the super short-run and exclusive Fed funds rate (which is available to banks only anyway). So why ‘shock’ the system now and cause potential market panic (and calls of political interference)? Before the 12-18 months pass, the Fed can cut any number of times and at varying levels.
all good points. Also wondering if in mid Sept in election year they have ever cut 1/2??
Fed is still in some state of shock as their Ouija board did not anticipate that sharp rise of inflation which ended up with a rapid rate of hikes to compensate.
The inflation is transitory bunch came off as the person who just before the Big meeting stepped into the dog poop on the sidewalk and does not have another pair of wingtips to put on.
If they have been humbled which is possible by that experience and data still keeps coming up not recessionary (this mornings housing numbers for instance still show some grit).
Caution is warranted so as to not reignite a second round.
25 is proper.
My guess is a .25% rate cut.
The reasoning is that its a continuation of the direction of rates (down). By doing a .25% cut now, they retain the ability to do another .25% cut in the very near future (emergency type cut) if this cut doesn’t reassure everyone that the economy is fine. But if they do a .50% cut now, then they can’t do another one anytime soon since they already did the .50% that was expected without inducing panic over the economy.
.25 or .50 doesn’t matter. What’s important is to be positioned for profits in any event. …$….$
I think a .25 is priced in and probably a little extra. It’s almost like the over/under is around .3 which would make most investments move one direction at .25 and the opposite direction at .5.
They are going to cut 1/2 point to juice the markets for Harris. Then when they realize they overdid it they will have to raise again in 2025. 70s all over again.
Watch the long end if they overdue it. They control short rates and nothing else
We really need a musical tribute for today. I suggest Dire Straits – Money for Nothing…and your chicks for free.
https://www.youtube.com/watch?v=lAD6Obi7Cag
Only if we are getting the original unedited version of the song.
I’m stickin’ with “The Party’s Over” (Willie Nelson, Feb1967). ❤️ Mark 12:30-31
I think the issue depends heavily on how likely Powell thinks Trump is to be elected. We know from the past that Powell can be intimidated by Trump. If Powell now goes to one quarter point, Trump will not attack him. If Trump is Is elected, we know he will pressure Powell to immediately reduce rates rapidly- – which Powell will then do- – which essentially will produce the same result as a one half point reduction now
The 3 month T-Bill is 4.869%. The 6 month is 4.583%. The Fed Funds rate is 5.25%-5.5%. The Fed must cut 50 bp in order to not be too far behind the curve. In fact, it could be argued they should cut 75bp since the Fed follows the market. Wanna argue? Overlay a chart of the Fed funds with the 3/6 month T. The Fed follows the Market. All this is theater to get a “surprise” half point cut and juice the stock market. Take a nap.
Gold Star.
You quote the short-term market T-bill rates here. Let’s see if your causation analysis is correct in a few hours. If the Fed does follow the market, and the market is saying the Fed funds rate (which is only available to banks anyway) is way too high, then I guess the Fed will acquiesce and cut 75bp.
I can see that the market is asking Powell for .50.
But I dont think that he is particularly influenced by the desires of the market.
A .25 cut at this point might further influence Congress to rein in spending, which is a crushing real need at this point.
And unlike the Congressmen, Powell does not care about getting re-elected.
Anyway, the market is going to crashafterward either way, so the strategy for me is pretty obvious.
You might get Congress’ attention with a 0.5% increase in interest rates. Then again, probably not. It will take a Jan 6 riot to get their attention.
Just refresh the memory of all Trumpers here:
Trump reportedly wants to fire Fed Chair Powell (cnbc.com)
Because well he too wanted lower interest rates while he was the president so to all Trumpers LOL
If Trump was smarter, he’d fire the entire Federal Reserve. One can only hope for change.
Abolish the Fed or just fire them and put his minions?
“If Trump was smarter”? Are you joking, Trump is a financial illiterate!
He has gamed the system so many times it may only look like financial illiteracy.
I’m guessing he has more hotels, golf courses, real estate and perhaps a hotter wife than you. But hey, I could be wrong
And not that that is the measure of a man. It’s not……..
Billionaires usually are 🙂
Chuckie, Trump is no different from any other Pres who are no different from one another. They have HEADLINE bull-speak and truths behind closed doors with their Donor Class, the Corp Lobbyists. There is a revolving door from Industry to Regulator seats and everything in between are simply NARRATIVES and OPTICS. The last two are For US! Voters.
Well, anyway, for YOU VOTERS because I stepped away from the Illusions of Voters over 20 years ago.
I do not “buy” any of it. It is called PSYCHOTIC to keep doing something over and over expecting better results from one side of the UNIPARTY or the other.
You win the comment section.
If anyone who has power was smart the FED would have been dissolved a long time ago. Alas only the mentally challenged hold political power and we continue to elect them.
“Trumpers”. lol. Many aren’t fond of him, but consider him the lesser of two evils.
Dick Cheney likes Harris because she’s the greater of two evils.
HAHAHAHA. Thumbs up a thousand times.
Rates were up across durations overnight. What is the market asking the Fed to do? Hmm… I go with .25
The market needs a true opportunity-cost-driven interest rate. What the market wants is free money to speculate with, plus the Fed underwriting any losses.
It is interesting that the market said over 50% chance of 1/2 point at the latest reading, yet professional opinion is still divided as to whether it will be a .25 or .5 cut. In 2007, the FED cut .5 on Sep. 18 and the market rallied until Oct. 11. As of now, the FED is allegedly well behind the curve of the decline in the 2 year yield, which it follows for deciding their rate.I’ll toss my 2 cent opinion in with the market. This morning heard that Tupperware is filing for bankruptcy. I guess they have gone out of style.
Which goes to show…. the Fed has lost control. They are the market’s b-word
Cumulative inflation since 1913, 96% of value gone…broken.
After the rate cut of 1/4 or 1/2, there will be a euphoric global equity blow-off to highs and to lower highs lasting 4 trading days with gapped higher highs ending Tuesday of next week – then comes a crash of 9 trading days with a major transient low on Monday 7 October. The leading manufacturing country, China and its imploding grossly oversupplied property bubble will lead the way to a hard landing for all. Western Smoot-Hawley-like tariffs will make it even more difficult. For the Shanghai Composite, now within 2% with its March 2020 low, Tuesday will be a lower, lower, lower high.
Cutting rates won’t solve the problem . . . what a joke . . . the problem is just going to get bigger . . .
What’s the problem?
A little thing called hyperinflation
People aren’t buying gold because they are worried about any kind of inflation. They are now worried about devaluation.
Reckless government spending pushing up $1Trillion every 4 months.
Our entire freaking system? Unless you’re rich or one of the middle class who can somehow avoid becoming poor. If you’re a member of the bourgeoisie or PMC, you’re golden, but probably filled with guilt. Hence, you might start peddling ‘The Secret’ or DEI because of that insane guilt.
In reading the two statements you crafted, I was drawn to 25 bps cut due to the wording and how it sounds much more in line with recent Fed speak and JPow speak. It’s a tricky one.
I will say a quarter point cut. Not that it matters much if it’s a half point. What is important is that today is the beginning of a rate cut cycle that could last the next 2 years.
I focus on the long term trends, not each individual number.
I think it’s a one and done, or maybe one more to fully catch up with the Market. But that will depend on 3/6 month market rates, of course, as inflation is about to re-emerge despite a weakening economy. Hasn’t anyone on here lived through the 70’s? I’m feeling very old now.
Only time will tell. How are you investing, based on your “one and done” scenario?
0 or 0.25 Fed has not been politically compromised. 0.50 cut Fed has joined the political process. Although, I don’t think they are as much about helping the Dems win as they are against DJTs proposal to control them.
It is not about data, only about political pressure. So here comes 50, which is indicative of what will happen later.
Fed should do nothing
I think they will say “We have no clue. The wealthy people that allow us to retain this control want lower interest rates and the poor people of this country don’t matter. We are cutting rates by .25 so we don’t appear to affect the election.”
Jerome should raise by .5
I’d like the Fed to give congress a choice: cut off Ukraine & Israel and cut a trillion out of spending (mainly the Department of Offense, CIA and State) and we’ll cut by 1%. Stay on the current course and we’ll jack rates up by 1%.
A .25% cut.