The FOMC statement itself said nothing. The action is in the Fed’s projection materials.
FOMC Statement
Please consider the Fed’s December FOMC Statement.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. …..
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
The statement itself does nothing, says nothing, and implies nothing.
Action is in the Fed’s Summary of Economic Projections.
Compared to September, the Fed increased its GDP forecast range, expects slightly more unemployment, and lower inflation.
It’s the Fed’s lower inflation forecast that allows the Fed to reduce by a half of a point its projected Fed Funds Rate from a range of 4.4 to 6.3 percent, to a range of 3.9 to 5.4 percent.
Market’s Expectation
Pre-FOMC meeting today, the market has priced in over four rate cuts next year, Do you believe that?
Double-Humped Inverted Yield Curve
On December 4, I commented “The yield curve went from steeply inverted to nearly flat and is now becoming more steeply inverted.”
I will do an update to my post in the next day or two, giving the market time to adjust the Fed’s comments.
As it looks now, the bond and stock markets are both cheering. The 10-year yield is down significantly over 17 basis points (0.17 percentage points) as I type.
Rate Cut Headwinds
- Global wage arbitrage and just-in-time manufacturing have reversed to inflationary onshoring and just-in-case manufacturing.
- Neither party will fix deficits and out of control spending.
- Trump’s tariffs and sanctions were hugely inflationary but Biden is much worse.
- Biden’s energy policy and regulatory madness is hugely inflationary.
- Retiring boomers need more medical care services. Their jobs are replaced by unskilled zoomers with a totally different work ethic.
- Massive wage increases in union contracts over a many year period and ongoing minimum wage hikes in many states.
Please bear in mind that for years I was one of the biggest deflationistas around.
But many factors supporting lower interest rates and lower inflation have changed 180 degrees from tailwinds to headwinds.
Hopium Is Alive But Questions Remain
Hopium is alive. It’s possible the Fed will cut even more than expected. But if so, will it be for strong economic reasons, a collapse in economic activity, or a surge of bank failures?
If inflation is transitory, then transitory to what?
For discussion, please see Huge Moves in the Yield Curve This Year, What’s Going On?
Regarding the huge inversion between 1 month and five years then strongly steepening: Could it be the bond market smells a short quick recession followed by a big inflation problem coming down the pike?
Due to the rate cut headwinds listed above (inflationary tail winds if you prefer), I question the widespread hopium that the Fed has inflation fixed.
I am on the road today, going hiking now. That means delays in approving comments not automatically approved.
Hoping the Fed Rate gets down to 3 maybe 3.5% ,we will see.
I used to laugh at the people who always said “buy gold”, no matter what the economy and the politicians were doing.
“The PPI is the culprit. It came in lower. It caused the inflation number to be reset for next week lower. Down in the 2 range.
It will have an impact on the PCE next week coming in at 3.1.
The wholesale price index was good. The PCE was good. It became untenable to not change policy. They would’ve been stuck with the policy for 6 months. And so with the latest numbers having come in that very morning they changed it.”
Per CNBC Steve Leisman on Fast Money Thursday Dec 14, 2023.
Me: They can’t sustain the higher rate and the strong currency as its costing
a fortune and the we’d go bankrupt that much sooner because they can
see the white dome building and those in it aren’t going to ever get a balanced budget with GenX coming up in 5 years for benefits. Autopayments on the budget are at 60% – 80%. They’re arguing about 20-40% for parks and recreation.
The chairman can mouth all he wants about 2%, but he’s got to make sure seniors get paid and those countries that are STILL $1 denominated don’t deteriorate or go to the alternative that’s the new option. Think Argentina and those that want to leave tighten your belt and hit the Road. This is more than Big B. This was in conjunction with a couple of 3 letter I’m here to help you types trying to regain ground lost.
Besides, I had a bottle of vitamins from Costco that I return. I bought them in Sept. They were $17. Yes they took them back. They were glued together. I got an exact bottle at a whopping price of $11.98. Prices are deflating. On some things.
In the post-FOMC Q&A, I felt like I could be watching a politician speaking at the Press Secretary’s podium, not the FOMC chair.
The yield on the 10yr US bond is heading down to 3.0%. In theory, this will force the FED to lower rates it charges and pays. This is the start of a correction from the COVID lows.
The FED may try to mop up some of money from bad US government fiscal policy by paying less on reserves, forcing banks to hold more in reserves, keeping borrowing rates as high as possible, or even selling any of its winning positions. Banks should get some relief as the value of recent loans made will be going UP, which means they can offset some of their underwater loans made at lower rates. Banks will be holding more cash.
The Fed is managing the economy. Wealth effect from stock market now. I don’t forsee rate cuts in 2024. Steady as she goes.
In 2008, a fundamental secular deflationary bear market should have occurred.
Now you know the rest of the story.
God help us all.
The soft landing will be like a plane landing on a runway made of quicksand.
For fans of Mish’s excellent column, I just thought I should mention my only other favorite column in case any of you have missed it. It’s called WallStreetOnParade.com and gives the most detailed information on the fed and the mega banks to be found anywhere. Check it out!
Pretty good, thanks.
Made a lot of money today. Almost as much as my dentist as I am getting implants (don’t get old). I was well positioned for this doveness. Congress has gone berserk and needs to borrow, borrow, borrow, etc. Time to go short my home country.
“Apolitical” and “Independent” Fed policy arriving just in time to help the Democrats in November! Join the Federal Reserve team and do your part today to influence election outcomes in 2024!
One must admit that what is being hailed as a “pivot” is a trifle bizarre. The fact that it showed up shortly after Biden and the WH publicly said that the Fed should start lowering rates as inflation comes down is just a tad coincidental isn’t it? To say that this seems politically motivated is merely stating the obvious. Given the amount of people filling out their little dot plots it seems obvious that the administration ‘may have’ done some serious leaning on some folks to influence their scribbles. Note the BoE is maintaining the course so what is up with the Fed? The only thing that makes sense is that Powell was likely fighting the beginnings of a revolt spurred by political meddling and that the movement in the dot plot while holding the line on rates is actually a short term compromise position. On the other hand maybe the Fed is actually moving off its 2% target and is comfortable long term with 3 or 4% inflation. If so and the Fed is going to throw in the towel we are in an awful lot of trouble.
The Dow all time high.
bad news is good news ….for the ‘markets’
I was watching the market all afternoon. It was a great day to sell.
Covered or uncovered?
Dow at all time high/ gas is down to getting reasonable price. Are you better of than you were 4 years ago.
Amazing that such a man can have such extraordinary powers not matched by any elected leader in the nation. Just mind blowing.
Can make any politician look good or bad at the drop of a point or two…
The regional banks had a party.
I wouldn’t put much value into post-meeting statements. Basically they say: we don’t know where we are, where things are going, and we just knee-jerk react to events.
BTW, who was it that introduced the term “market expects”?
Was it not Greenspan who made it a tool of analysis what the market expected?
By market of course, he meant the financial Wall Street casino, not the goods and services market.
Before that, there was manufacturing market economy with FIRE as a prop.
Interest is the price of credit. The price of money is the reciprocal of the price level. The price level is predetermined by American Yale Professor Irving Fishers’ truistic “equation-of-change”: P*T =M*Vt (the old school’s transaction’s concept of money velocity).
The FED has held the “means-of-payment” money supply constant for 20 months. However, the demand for money has taken a big shift. The composition of the money stock has changed, and the velocity of circulation has accelerated.
The increase in the demand for money was reflected in the 39-year bull market in bonds. Lately we have been getting the opposite scenario, a decrease in the demand for money.
The fall in the ratio of gated deposits to transaction deposits has heretofore propelled the economy. We should watch for a reversal.
Why would there be a demand for more money when there is already too much money?
This insane ‘pivot’ narrative must die.
Anyone rooting for a return of the era of that fraudulent monetary insanity needs to be wiped out financially.
Of course, there’s no such return to that.
A severe recession to cut out the rot is very much needed.
I don’t like rising unemployment at all but all throughout history it’s can’t be avoided.
You cannot print your way out of inequality, societal breakdown, the continuation of a two-tier society, unsustainable debt-levels and impossible interest-payments on it.
2024 is going to be a year of insufferable maniacs trying to keep together a broken system beyond repair. They will try to maintain their positions of power, wealth and political standing by doubling down on censorship, propaganda, warmongering, financial repression, transfer of wealth and a desire for more control, more power, more wealth.
Somehow, these failed policies of central banks won’t make much of a difference when facing with sociopaths lashing out.
re: “A severe recession to cut out the rot is very much needed”
Hardly. We can follow the 1966 precedent, drain reserves and hold the money stock constant while lowering policy rates.
You see the “smartest guys in the room” still think banks are intermediaries between savers and borrowers.
It’s no double entendre. Economists universally posit that banks lend money.
No, every time a DFI makes a loan to, or buys securities from, the non-bank public, it creates new money – demand deposits, somewhere in the payment’s system.
I.e., bank deposits are the result of lending and not the other way around. The DFIs could continue to lend even if the non-bank public ceased to save altogether.
The FDIC should lower deposit insurance maximums and the FED should cap deposit interest rates – and gradually lower them, like in 1966.
The FDIC should lower deposit insurance maximums?
And the FED should lower rates?
Thank God you’re not in charge of monetary policies. It sounds like if it were up to you we go back to ZIRP/NIRP and QE.
All the talking heads are orgasmic. Every channel. They want to know what happened between September and now. “Green Light for investors” “validation for what they were doing” “inflation declines”.
I’m looking at Nov 2024 and knowing the Fed is front running the economy for Brandon. Then when he gets re elected 🙄 the pain trade is 2025.
Mish, I am leaning towards an Economic Downturn/Recession suddenly dawning on these FED folks who will be FORCED to PIVOT rapidly, and possibly earlier than we could possibly imagine?
Historically, the Fed pivots suddenly due to fear. Also, other readers have suggested that with the debt load and that we are buying our own bonds, that Int Rates MUST come down or we will default (I dunno!???). What do you think?
No offence, but I think you’ve been conditioned to believe that central bank monetary policies are all powerful. When in fact they’ve been a massive failure. Why are you hopelessly repeating the buzzword ‘pivot’? Do you honestly believe a return to the zero bound?
Can’t you see the reality in front of us with these mountains of debt, completely frozen real estate markets, maxxed out consumers and the severe geopolitical consequences to corrupt monetary policies that enslaved the rest of the world?
As far as I’m concerned the era of central bank intervention has already ended. All this hype concerning ratecuts or ratehikes don’t make any kind of difference with a severely broken monetary system.
Recession is yet come. I don’t fight the MKT and Fed has given up, with outrageous DOVISH signs . I am just riding along this ‘anomalous’ bull mkt with some hedges. Dow on record today.
Fundamentals mean NOTHING ever since Fed slaughtered the our free mkt system in open day light in ’09.
I agree Fundamentals mean nothing. The stock market will go up when people think they can make money. Imo partly because easy access to the market by average people using new tech.
“Biden’s energy policy and regulatory madness is hugely inflationary.”
You keep claiming some version of this statement but the fact is that since the inflation reduction act passed in August 2022 inflation is down from 8.3% to 3.1%. But whatever.
Hugely inflationary when under Biden the USA has been pumping record amounts of oil. Where do you get this garbage?
It’s a quote from Mish from this article, that’s where I get this garbage. I agree with you, it’s not inflationary.
Cognitive dissonance?
And the energy component of CPI is in deflation, down 5.4%. So much for the idea that Biden’s energy policy is hugely inflationary.
Here comes Santa Claus.