The odds constantly change but here’s a post-FOMC snapshot.
My how things have changed.
In October, the market expected a rate cut in December and another one in January and half of one in March.
There were no cuts in December and January. And now there’s only a 17 percent chance for March.
Budget Busting Promises
Two-and-a-half rate cuts that were priced in have since flown out the window.
Some of that is due to expected Trump policy. He has made budget-busting promises to end tax on tips, on Social Security, and on overtime.
He wants to restore State and Local Tax (SALT) deductions to buy votes from Democrats for the tax cuts he really wants.
And he proposes to pay for all of this with tariffs, which is ridiculous.
Huge Range of Possibilities
I don’t rule out rate cuts because no one knows what his immigration and tariff policies will do to the economy. For now, the setup looks more like a stagflationary brew. And that would imply rate hikes not cuts.
Our first big clue will be on February 1 when Trump has twice promised to hike tariffs on Canada and Mexico by 25 percent.
That would be a signal to the world that Trump may not honor any deal, even ones he personally negotiates.
I fail to see what possible good can result from that. So color me still skeptical that he does what he says.
Related Posts
January 29: Imports Surge 3.9 Percent Exports Plunge 4.5 Percent, New Trade Deficit Record
Today’s trade report will have Trump howling.
January 29: Trump Announces New Tariffs on Computer Chips and Semiconductors
Trump goes after Taiwan in a spat over semiconductors.
January 28: A Great Tariff Experiment as Trump Repeats Threat of Universal Tariffs
All eyes are on February 1 as Trump renews his threat for universal tariffs.
You can get a 1 year CD at Schwab or other major banks for 4.5%.
So why buy Treasuries like bond funds when you can get a great deal with CD’s ?
Banks borrow at the Fed Funds rate of 4.5% and then turn around and charge 7.5% for the prime rate.
Right now annual inflation based on PCE is around 2.4%.
The Federal Reserve can lower the Fed Funds rate to 3.25% and that should drag down interest rates for the 10 Year Treasury and the 30 Year mortgage.
Historically the 10 Year Treasury is around 1.5% greater than annual inflation, and the 30 Year mortgage rate is about 1.5% greater than the 10 Year Treasury.
https://www.crestmontresearch.com/docs/i-rate-10-yr-yield.pdf
“So why buy Treasuries like bond funds when you can get a great deal with CD’s?”
Because I can sell SNOXX, SNVXX, and SNSXX in a day to raise cash for whatever I need the cash for. Such as, there’s blood in the streets because the stock market has finally retreated from nosebleed levels and everything is on sale.
Meaning, I am willing to give up the extra ~0.35% interest (the Schwab funds were paying 4.15%-4.17% last I checked) on a mutual fund that holds Treasuries and other high quality paper for the opportunity to unload my holdings within 1 settlement day.
The stock market is like California was a month ago before the fires. There’s going to be a correction; we just don’t know when. The unwinding of the last several decades of monetary policy is going to be brutal.
– He wants to restore State and Local Tax (SALT) deductions to buy votes from Democrats for the tax cuts he really wants.
I am not so sure “The SALT deduction”, Which Allows Taxpayer’s “WHO ITEMIZE” to subtract (“certain state and local taxes”) from their “Federal Taxable Income” These taxes include “State Property Taxes”, “Income Taxes”, and “Sales Taxes”. Is a very good idea at all!!!
– Former President Donald Trump made headlines…
> ”Seeking Support” and He makes headlines every time He speaks.
– “VOTE FOR TRUMP! I will turn it around
> “Turn around what Specifically”?
– get SALT back > “All Of It”?
– lower your Taxes > By “How Much”?
– and so much more, > “How Much”?
– on Truth Social.> “Trumps Website” And?
BELOW-
Most Excellent (Post) Rule! DOGE should make sure it stays this way forever, OR Preferably SALT & TCJA are removed forever, and never to be seen or discussed again.
– Before 2018, there was “no limit” on the amount that could be deducted. However, the Tax Cuts and Jobs Act of 2017 (TCJA) imposed a cap of $10,000 on the SALT deduction ($5,000 for married individuals filing separately) from 2018 to 2025.
> It’s gotta GO! (PROOF, Keep Reading)!
The “SALT cap” has been particularly “unpopular in high-tax states like New York, New Jersey, and California” Hmm… — so-called “blue states” that typically lean Democratic. (Don’t Say?)
– Proponents of reinstating the full SALT deduction often argue that the cap disproportionately affects residents of high-tax states, which tend to provide extensive public services.
> “STOP TAXING” your Residents So Much, and let them pay for the services they want personally, with their money, and what they want to do with it. Not Hard?
– Reinstating the deduction would prevent double taxation by allowing taxpayers to avoid paying federal taxes on income already paid to state and local governments.
> Forget that, it’s gone TY, Work that out with the Feds, not Deductions for the “Itemizers”
– It would also support state and local government autonomy in setting tax rates.
> Who do they Need That?
Meanwhile, some opponents of reinstating the full SALT deduction contend that the tax break primarily benefits taxpayers with higher incomes.
– According to the Tax Foundation, before the cap, 91% of the deduction’s benefit went to those with incomes over $100,000.
> Exactly “Over 100K+!!!
>> Gotta Go!
No one is gonna read all this
That’s OK, as people can choose to read what they want, and learn what they want.
I post what I feel, based on my knowledge, research, questions and answers, etc. I choose to share those thoughts with others here.
You are totally free to read whatever you want to and ignore what you feel you don’t need to read. That’s what’s great about “Freedom” as you get to choose, and not be told what to do, say and READ!
Enjoy your day Scott, if you read this!!
P.S. Vote AGAINST the SALT TAX!
BoC lowered. ECB lowered. Etc.
And the “Loonie” is now worth $0.69
The Fed reacts to the bond market, so the appropriate question is: “What will the bond market do between now and next meeting?”
Also, gold broke out today.
The FED has halted its inflation fight. Total reserves haven’t decreased in the last 8 months.
You imply, perhaps unintentionally, that the Fed might do the “right thing” by its own lights rather than curry favor with the White House.
My money says the next Fed chair nomination is Melania or Marla Maples.
Yep, skeptical here too. But. living in Oregon, I’ll take any SALT thrown my way with glee.
Mob ‘wisdom’ is traditionally famously inaccurate and emotionally-driven. It is quite interesting that in this case, the wisdom of the mob can predict rates so well, it’s as if the correct policy is obvious to Joe Schmo “or something” – get with it, Fed
How about addressing policies which will lower inflation and what caused inflation to spike to such high degree.
Energy was restricted by Biden administration in order to fulfill the progressive goal of New Green deal.
This policy is getting reversed. It is primary cause of fundamental cost inputs which pushed inflation higher.
Affordable energy was a key premise of first Trump administration. It is no surprise that removing that linchpin under Biden contribute to cost push inflation.
Labor input. Trump administration will be allowing people to actually work productively instead of spending inordinate time filling out compliance forms. Regulatory Reform will reduce waste, increasing efficiency in workplace.
Reducing Government waste. Throwing money at problems is not an answer, but it has been the way things got done with Federal funds disbursed. DOGE is in effect, time will tell if it is effective.
Reducing illegal immigrants, reduces their access to US Medical system Lowering operational costs which have nearly bankrupted numerous Health Care Institutions across the United States. Illegal Immigrants who contribute nothing to paying in to the Hospitals.
Opening up National resources so as to have sufficient commodity availability. Things like logging in National forests would benefit Housing, redirecting watershed flows so that Farmers have adequate water to grow crops instead of implementing National policies forcing farmers out of Business would lower food costs at the supermarket..
This list can go on at length. Reducing the Causes of inflation reduces the pressure upon monetary policy to act as check upon said inflation pressures.
To date that has been Trump administrations stated goals.
Federal Reserve has no monopoly on being correct in their assessment of how to get an economy to Grow. They have consistently made bad decisions and will continue to do so.
would also add, since there is so much consternation over executive orders being implemented.
I watched Bobby Kennedy and Patel hearings. Hung up on stupid was blatantly evident in those discourses. Whole country got to see up front and in your face a pack of Hyenas growling and barking. It will not be forgotten.
Fun seeing Grassley give one Senator extra three minutes of time showing just how dumb, Dumb can be. Plenty of rope to hang oneself was granted.
“This list can go on at length. Reducing the Causes of inflation reduces the pressure upon monetary policy to act as check upon said inflation pressures.”
I don’t think you understand what inflation is. Inflation is always and everywhere a monetary phenomenon. If you think of the money supply as a balloon, as you start inflating or deflating the balloon, that is what the money supply is doing.
And this process can have effects on the prices of things given money’s role as a medium of exchange “independent* of what is going on with supply and demand in the marketplace.
So inflation *of the money supply* is independent of energy, labor supply, illegal immigration, gov’t waste, etc.
It is crucial that we never forget that inflation and deflation have to do with the money supply and are not rising prices or falling prices. To do so means we lose sight of who is responsible: The Fed.
When the Fed was created in Dec 2013 when most of Congress had left D.C. for the holidays, gold was $20.67 per ounce. Right now it is at $2794.40 per ounce. This price difference reflects to loss in purchasing power of the dollar over the last 111 years.
Where has all this purchasing power gone? It has been siphoned off through inflation and transferred to the people who really run the show. It’s a Big Club and you and I ain’t in it.
Here is something to ponder. Supply and Demand set price in an open market.
Available money creates Demand. Yes increasing available money increases demand and is inflationary.
However Supply is not a fixed entity.
If you have one person available to do a job. That person can pick and choose between whatever Demand/available monies is willing to pay.
If there are ten people available, you ban bet one of those people will work for less then the other nine.
To not look at Supply availability is a fatal flaw in your thesis.
Economic analysts believe Supply is always fixed in your school of thought. In real world supply is not a constant and that is why there are commodity markets which are constantly traded based upon supply.
If supply did not matter then how does a freeze in Florida wiping out Orange crop not drive up price of oranges on an exchange.
The Fed denies it uses Labor to depress prices yet in actuality it does that precise thing. Fed is always micromanaging demand to fit their theories of how an economy works.
What thesis? I merely identified the classic definition of inflation. Which I think you don’t understand.
The Fed follows the 3/6 month T-Bill rate. So what is predicted for that? Forget the middleman (the Fed).
Gary, few who comment here can read a chart. As we know, unless T- bill rates decline precipitously, which doesn’t appear likely considering the debt overhang, the answer to Mish’s question is zero.
Basil Halperin on real interest rates and AGI
https://x.com/BasilHalperin/status/1884693345857134858
Pending home sales crashed in December. Residential RE is going into a deep coma and CRE is already dead. This represents a significant chunk of our disfigured “economy”, so there is no doubt he will be howling constantly now for lower interest rates. He can now say to Powell, “Look – we are doing all these “great things” to bring the deficit down and get the debt under control. The least you can do is give us lower interest rates.” If he does not get what he wants, you can be sure that he will make Powell’s life a living hell on earth – to the point where he might seriously consider resigning.
Unlike the Biden handlers, Trump will have no influence over the Fed until a change of chairman.
Biden was straight up evil to make Powell stop the free money. What could possibly be wrong with FREE MONEY? It’s FREE FFS!
If the amount of goods and services doesnt increase proportionately with the free money, prices will rise. Seems that may have been a reason why the Republicans and Democrats allowed in the millions of immigrants, hoping the immigrants would produce more goods and services locally, and why even with a majority in Congress, Trump and the Republicans arent passing a law making e-verify mandatory.
This is the economy Trump inherited.
: A record number of consumers are making minimum credit cards payments, per CNBC.
The share of active credit card holders just making minimum payments rose to 10.75% in the third quarter of 2024, the highest ever in data going back to 2012
Trump will always blame Biden and anyone but himself, and never say he’s accountable for any problems. Prove me wrong and name one exception to the rule.
We’ve got a new angle:
https://tennesseelookout.com/2025/01/29/bill-criminalizing-votes-for-immigrant-sanctuary-policies-constitutionally-suspect/
We’ll just make Powell a felon if he doesn’t do what we tell him to. Genius!
And some of the people proposing that law almost surely have immigrants working for them and theyll find places for them to live whether there are sanctuary laws or not. Its a total BS Uniparty pandering distraction ploy because “sanctuary” is one of their favorite divide and conquer issues to try and create division while the Republican and Democrat Uniparty continue to drown the country in debt.
I’ve seen a lot of conservative chatter along the lines of “promises made promises kept”
I have a feeling Trump intends to be able to say he keeps his promises.
3 of his big ones are J6 pardons
heavy immigration enforcement
tariffs
He’s 2/3 already. I kind of expect him to follow through with canada/mexico tariffs on 2/2, but I’m thinking he probably starts at 2.5% a month as has been hinted.
This would be a promise the markets will hate as will the economy.
2.5 percent is absolute 🥜
until it’s implemented
It’ a slogan for the gullible… we’ll keep a few, then do as we damn well please. They’re too far in to turn on us.
Thanks to Grover Norquist and the “starve the beast” campaign, public education has been kneecapped, making your drooling supporters that much easier to mind control, since their minds voluntarily rarely function. What a genius ploy by the GOP! Trump is here to finish off public education once and for all, and charge those students even more interest on their loans! Let’s make scholarships taxable income while we’re at it, why don’t we?
It’s very humane and we’re being very patient. Rather than slaughter the intelligent, like Mao and Stalin, we’re letting them die out and preventing replacements.
This is a kinder, gentler fascism, with AI and electric cars. You guys are gonna love it, and me!
SPY might close Jan 24/27 gap, before turning down a little for a sling shot up to 620/630. Thereafter, if SPY breaches Aug 5 low, or Jan 2022 hi, JP will cut rates..
whatever happens your prediction is correct, that is true genius
No. My bet: 1M SPY Jan might close > Nov (c), but < Dec high for technical reasons. 1D SPY: option #1: straight down. Option #2: down a little before rising to 620/630. The big drop might come later < Aug 5, or < 2022 high.
Thanks be to Trump for the huge range of possibilities.
The Fed, like all of us, will have to wait and see…
like the proverbial deer in the headlights.
Well, Powell certainly didn’t get the memo from Trump demanding he cut rates immediately yesterday.
I don’t expect Powell to heed Trump’s demands unless the FR sees improvement on the inflation front.
From a CPI perspective, we’ll be replacing a 0.3% MoM rise last January when the January CPI is released
From a PPI perspective, we’ll be replacing a 0.4% MoM rise in final demand with a -0.1% MoM for goods and a 0.6% MoM for services.
I don’t see much improvement in either January inflation report unless MoM comes in flat or negative.
I think it’s all but certain that we aren’t going to see final demand for goods decline 0.1% MoM like it did last January, particulary when one looks at oil, gasoline and diesel futures prices over this month.
Given the gasoline and diesel fuel use for services, I’d think we’re still going to see another monthly increase, albeit perhaps not as bad as last January’s 0.6% MoM increase.
Whether or not Trump’s tariffs come to fruition and if they will impact inflation negatively is yet to be seen.
However, we import nearly 60% of our oil from Canada, 58.3% to be exact based on the most recent EIA data for October 2024.
We imported another 7.2% of our oil from Mexico as of the same monthly data.
All in all, we import 65.5% of our oil from those two nations.
If Trump imposes 25% tariffs on oil from those two nations, it is inconceivable that the rate of inflation won’t increase.
Nobody knows what Trump will do other than Trump, but if he follows through with 25% tariffs across the board for Canada and Mexico, you can kiss any improvement on the inflation front goodbye for now.
On the other hand, that also depends on how long those 25% tariffs are in place.
63.4% of Canada’s exports were to the U.S. in 2022 and 72.8% of Mexico’s exports were to the U.S. in 2022.
Given how much both of those countries rely on exports to the U.S., I don’t see either one holding their ground for long if they try to do so.
The Fed will follow T-Bills! If they decline which is likely as institutions unravel the hedge short-T-Bills/long 10yr Treas they put on expecting major recession. As part of this recession bet, these institutions were also long Mag 7 which has likely topped.
You want to look at companies like Cooper-Standard(CPS) selling at 0.1x Pr/Sales with slow auto mfg. CPS should reprice closer to 1x Pr/Sales as supply chain issues ease and SAAR approaches 18mil vehicles.
The odds are 100% because it is the only way everyone gets what they want. Governments get their interest payments reduced on their crushing debt, and the rich and connected continue to buy up America with free borrowed money. How many people honestly believe this carnival barker isnt gonna get whatever he wants to get, including staying in the White House after 2028 and becoming the first American King?
Still waiting for 0 rates Scott. Tick tock
Im glad you arent so old that you expect to be around when they arrive 🙂
I’ve got the fat guy working on some mafia-style intimidation to get Powell out of there. If that don’t work, we’ll just tell those 1600 crazies we pardoned that Powell is selling the nipples of schoolchildren to space aliens, and let nature take it’s course.
Hulk Hogan is clearly the man for the job. Kid Rock wants it, but that guy is pretty gross… he leaves grease spots on the furniture.
Get ready for the Hulkamania Economy!
Going to depend on the data. If we have 5% GDP and 3% inflation, not a chance.
But if you believe Lacy Hunt, whose latest video I am watching right now, and who I generally do believe, deflation is our risk going forward, not inflation. So the Fed will be able to comply without looking like they were knuckled under
In any event, at the end of the day the Fed is largely irrelevant
There are many ways Trump can force a rate cut. The most obvious is to crash the economy which he almost did with XO and freezing spending. Medicaid alone supports millions of people through hospitals, pharmaceuticals, and overall healthcare services reimbursements. Cut that off and you’ll have hundreds of thousands of people laid off eventually.
Starting a tariff trade war may plunge the world into a depression, another option to force rate cuts. I could go on but why, there’s infinite ways to be a clown.
We’re just providing clownish representation for clownish people. Clowns have been repressed for far too long.
One could look at the George W. Bush experience in Iraq to consider what happens when you throw a generation of professionals and civil servants suddenly into the streets.
Delete
Lacy Hunt latest interview he talks about the positive benefits of tariffs on our economy. Single best economist living.
I’ll maybe look at more of his ideas but right off the bat, his saying deflation is a concern is total BS, its only bad for people like him holding bubble price assets who want to keep the ponzi scheme going. Overturning the cheap debt fueled speculative orgy in stocks and real estate is exactly what the country needs. Wouldnt be surprised if Hunt supports more dollar debasing money printing and interest rate suppression central planning. All the greedy billionaire debtmongers do.