Is the market right or the Fed?
I created the above chart from CME Fedwatch projections on September 20.
The Fed and the market project roughly the same path through December of 2025.
However, the Fed “dot plot” of economic projections has the Fed Funds rate for December of 2026 at a median rate of 3.4 percent. In contrast, the market projects a year-end 2026 rate of 3.0 percent.
Looking at things another way, the market see the March Fed Funds rate at 3.44 percent in March of 2026. That’s the year-end projection by the Fed for December.
Trump on Interest Rates
The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet…..
Summary of Economic Projections
Please consider the Fed’s Summary of Economic Projections from the September 17, 2025 FOMC meeting.
“Appropriate monetary policy” is defined as the future path of policy that each participant deems most likely to foster outcomes for economic activity and inflation that best satisfy his or her individual interpretation of the statutory mandate to promote maximum employment and price stability.
SEP Summary
- Year-over-year GDP: 1.6 percent in the fourth quarter. The longer run is 1.8 percent.
- Unemployment Rate: Rising to 4.5 percent by December
- PCE inflation 3.0 percent. The longer run, as always, is what the Fed wants to see. It’s consistent arrogance.
- Fed Funds Rate: 3.6 percent for December. The longer term is 3.0 percent.
Trump is not be happy with the Fed’s projections of interest rates, the unemployment rate, inflation, or GDP.
The Fed’s Interest Rate Projections and Trump’s Demands Are Light Years Apart
On September 17, 2025, I noted The Fed’s Interest Rate Projections and Trump’s Demands Are Light Years Apart
The Fed is quite undecided where interest rates should be. Trump isn’t.
Fed Notes “Challenging and Unusual” Setup on Unemployment and Inflation
On September 17, I commented Fed Notes “Challenging and Unusual” Setup on Unemployment and Inflation
Powell says risks to inflation are to the upside. Risks to labor market are to the downside.
“Think of this as a risk-management cut. There are no risk-free paths. It’s not obvious what to do,” said Powell. Click above link for more quotes.
Why Does the Fed Project Fewer Cuts?
The SEP has the answer.
For December of 2026, the Fed median Core PCE inflation expectation is 2.6 percent, up from 2.4 percent in June.
PCE stands for Personal Consumption Expenditures. Core PCE excludes food and energy.
The Fed’s inflation target is 2.0 percent but the Fed expects 2.6 percent.
If the PCE inflation forecast is in the ballpark, The Fed will not be cutting rates much in 2026.
I was listening to a Bloomberg podcast and they were saying how lower interest rates would help the lower income people the most because they would not be paying as much interest on their debt and could then afford more to eat or buy more cloths. I kid you not.
Murray Rothbard is crying
GDPNow says 3.3%, and Net Exports are back down to normal levels, meaning the trade distortions of tariffs are gone. The core PCE YoY inflation rate for August is predicted to be 2.9% or unchanged from July. If Trump’s current tariffs are going to cause a price spike, it will happen by the time the October data in late November is released. To me, core PCE inflation of at least 3.3% by the end of the year is a meaningful spike of inflation. If it doesn’t happen by then, then we can say with good confidence that sluggish jobs market is not related to tariffs. It’s something else, like AI deployment planning.
Option #1: SPX might drop to 5,500, before rising to 6,900/7,000
Option #2: the 5 months bull run is over. The Dow is slightly above 2024 high.
The market is betting on a fascist takeover.
Right! Because everyone knows a fascists running the country is great for stocks.
maybe if your side just keeps shooting people and lighting people and things on fire, we’ll come around …
Trump posts that Ukraine can win all its land back. Says we will provide arms to NATO. How long will this impulsive outburst last? Nanoseconds? Maybe we should feed the Russkies Tylenol.
The target inflation rate is 2%. We are running at 3% and way over target. Cutting rates now would indicate a conviction employment is going to drop. This would entail a recession. No such conviction of recession is in the cards today, rate cuts should be off the table, for the time being.
Dear Leader commands that rates be negative, and so they shall be!
This was true under the old economic model. The new AI economic model will see a steady elimination of jobs in most forms of work while all old economic measures go out the window. The transition will be difficult but eventually, everything anyone needs to live (housing, food, healthcare, education, etc.) will be provided for free by the AI government and its mostly robot workers.
AI government sounds pretty good to me these days.
A couple of more months of high inflation will break the stock market.
TNX is down. QQQ, SPX and Gold, a new all time high. Fifty million foolish people are buying foolish things. DXY is in a 3 months trading range.
So what would be a Central Bank game plan be for higher unemployment but higher inflation. That looks like where we are heading.
Governments will keep printing debt and give some to their chosen companies via government contracts. The will also use debt to provide it to pay unemployed people too. So will the Government spending help keep the economy from contracting but currency devaluation lead to higher prices and higher inflation?
The people who have jobs will keep putting money into their 401k. The number of stocks to invest in keeps decreasing so higher PEs. That could float the stock market higher even on a so-so economy?
Stock market: A bad economy could hurt the middle class or lower income people but they are not invested in the stock market anyway. So no big deal. The only way the stock market can drop is if people sell. If the top 5% decide not to sell and don’t need to sell….what could cause a stock market drop. The top 5% own 93% to 95% of the total stock ownership. The top 1% own 90%. So really if the top 1% do not sell. No drop in stocks?
Just throwing some thoughts out here.
Credit collapse might trigger a slide.
The fundamental (and least understood) factor in economics: Change (in opportunity costs) occurs at the margin.
It isn’t the top 5% that sell or don’t sell. It is the 1% (or less) who sell, or don’t buy, and panic (commonsense) sets in.
Based on rising inflation, the Fed should be hiking rates. The Fed is really stuck this time. The US debt picture is ugly and federal revenue is shrinking. This will cause upward pressure on rates in the bond market. Trump is betting bondholders will come back groveling to the US but I wouldn’t be so sure. In order for that to happen, you actually have to have a 2009 type deflationary recession. Unemployment could skyrocket anyway b/c of AI. Canadian companies I know are closing offices in the US permanently and offering employees jobs in Canada.
Many have been expecting stagflation to materialize for the last 4+ years, in my circles. Will it ever get there? That’s the biscuit right there.
trump killed their trust with his demented cavorting. That won’t come back, no matter how bad things get.
Well..spam at my post. USD is at the lowest point of any year in recent memory YTD. All b/c of bad policies. Assets are inflated prices but this just means no one wants dollars anymore.
AI capex/ Mag7 market cap = $300B/$18,000B = 1.7%.Texas renewables and batteries provide energy to data centers. When the sun shine solar panels charge batteries. After midnight, when prices are low, Texas ERCOT, buys at cheap wholesale prices to sell at retail during sunshine. In CA it’s the same bs: solar charge batteries -> CAISO buys at wholesale prices after midnight and sell when prices are high, at noontime. The total: NG, renewables, coal and nukes reached an all time high. The wind, the sun and NG already chewed up coal and nukes, causing pathways aneurism. When data centers cannibalized each other, NG and renewable will do the same ==> High tech bust along with energy bust in TX and CA.
Headline could read “Market Wants a Much Faster Pace of Rate Cuts Than the Fed” or “Markets Demand a Much Faster…”
I don’t think anyone I know wants to have the rate cuts go faster as that would portend something worse for the general economy but we are in a no news is good news/good news is good news/bad news is good news polllyanna every day is an up-day stock market.
This is going to end in disaster and tears for many. Feels like a combination of 2000 and 2007 so far. The Fed is at their endgame. At some point, I think the dollar index will go the way of banana republics
Who on earth would buy US debt at 0% when Trump and his pack of idiots are adding $1 Trillion in new debt every 150 days?
Elections have consequences!
Some worse than others!
The simple answer is: the fed!
JM&J how much was the debt being added to under GWB, BHO, and JRB? Would electing the dementia-addled clown or his annointed/hand-picked/non-elected empty suit have changed the debt trajectory? Every post…every one. This isn’t about the current president although he’s in charge currently…but about every president and Congress.
I wouldn’t buy the debt at zero and we are adding to the debt as you indicated. Pretty sure the terrible trajectory hasn’t changed all that much. No one willing to endure any pain.
Look at how the market reacted for 2 weeks in April…you’d think the balloons had gone up.
…especially when they can buy trumpcoin and $Melania!
That skank is in hiding from her malignant, narcissistic pimp…
I saw her out with him just the other day… dressed like the Hamburgler and schmoozing with the royal family.
What about 100 million? 100 million people can’t be wrong!
You can fool some of the people all of the time, all of the people some of the time, but you cannot fool all of the people all of the time (or so they say)
You just need to fool enough to shout down the rest.