That’s the claim by several economists on Bloomberg. I disagree, depending on the definition of “push back”. 
Pushing Back, Full Speed Ahead, or Something Else?
Bloomberg reports Fed Officials Seen as Likely to Push Back Against Half-Point Cut
- “We’d never want to overreact to any one month’s numbers,” Chicago Fed President Austan Goolsbee said in an interview with Bloomberg Television’s Michael McKee and Sonali Basak.
- “Given Fed officials’ hawkish bias, I would anticipate this seals the deal for a September cut, but there will be resistance to a 50-basis-point cut,” said Gregory Daco, chief economist for Ernst & Young LLP.
- Richmond Fed President Thomas Barkin, in an interview with the New York Times, also leaned away from the notion that any cut exceeding a quarter percentage point would be appropriate.
- “There have to be a few members of the FOMC who believe that they are now behind the curve on policy, although the majority still seem to favor a cautious approach,” said Kathy Jones, chief fixed-income strategist at Charles Schwab. “If the economic data continue to be weak, then a 50 basis-point cut is possible.”
Something Else
The Fed would be wise to do nothing other than say they will look at the data.
If that’s a pushback, then OK, it’s a pushback, but I don’t define it that way.
A pushback to me would be statements to the effect the economy is strong coupled with statements that 25 basis points is enough.
The next meeting is September 18. Between now and the 18th there will be a slew of economic reports.
BLS Economic Data Schedule
- CPI: August 14
- QCEW Quarterly Jobs: August 21
- Employment (Jobs) Report: September 6
- CPI: September 11
That is just the BLS schedule. We also have pending retail sales reports, new home sales reports, construction reports, revised GDP reports, etc.
The Fed should not say anything until at least the next CPI report on August 14.
That’s not realistic. So expect a “wait and see” instead of a stronger pushback. The Fed is likely to mention the length of time and additional data reports coming in.
My Expectation
Kathy Jones at Schaub says “If the economic data continue to be weak, then a 50 basis-point cut is possible.”
I suggest if the data is weak enough, a 50 basis point cut is a given. And I do expect that to be the case.
Data is weakening fast. The Fed probably realizes that now but it will not want to take a stance either way.
In the short term, the Fed’s aim should be to say as little as possible to avoid being wrong one way or another. By that rationale, the Fed won’t want a strong pushback against 50 basis points then have the data suggest that is what they need to do.
And if all hell breaks loose, the Fed sure will not want to call an emergency meeting in October. That in and of itself may prompt the Fed to do 50 basis point in September.
All Hell Breaks Loose
On July 25, I commented “All Hell Breaks Loose” In the Next Few Months as Recession Bites
Two of us are still adamant that a recession has started. The other is Danielle DiMartino Booth, in her best video yet. Please take a look.
Since then, we have indeed seen a fast start to all hell breaking loose.
July 31: Small Business Employment Growth Is Now Negative (and What It Means)
ADP data shows year-over-year payroll growth is negative 88,000 for small corporations sized 20-49. Trends are negative in all but very large corporations.
August 1: The Manufacturing ISM Index Is Lower Than Every Economist’s Estimate
The ISM manufacturing report was a disaster from every angle, especially employment , production, and backlogs. Employment reading worst since June 2020.
August 1: Commercial Construction Spending Is Down 9 Consecutive Months
Here’s the kicker: It’s not office related. And the Census Department has heavy negative revisions to spending. Let’s investigate.
August 1: Intel Announces 15,000 Job Cuts, 15 Percent of its Workforce
Intel received $8.5 billion in Biden administration grants (Inflation Reduction Act) but announces massive layoffs and halts dividends due to a decline in revenue.
August 2: Unemployment Rate Jumps, Jobs Rise Only 114,000 with More Negative Revisions
The headline jobs number was much weaker than the consensus estimate of 180,000 and the unemployment rate rose 0.2 percentage points.
August 2: The McKelvey (Sahm) Unemployment Rate Recession Rule Just Triggered
A recession indicator based off rising unemployment triggered in July. Claudia Sahm, a former Fed economist, takes credit for an indicator she did not invent. Let’s discuss.
Weakening data explains the recession call. The Yield Curve Action provides a confirmation signal.
All hell has already broken loose. And this is just the start of it.
RBOB, ULSD, WTI and Brent prices have fallen quite a bit of late, despite the run higher off of recent lows hit earlier this month.
Believe it or not, ULSD, aka diesel fuel, futures were trading at roughly 2 year 7 month lows early last week and are still more or less at those lows after the leg higher through Friday.
This has led to prices at the pump for all three grades of gasoline and diesel fuel to fall quite a bit over the last 3-4 weeks.
Prices are down considerably YoY for all grades and even more for diesel fuel with prices continuing to decline.
Every state and DC are lower YoY for diesel fuel with some states seeing prices down nearly $0.75 YoY.
Given how many goods are transported and services or provided via vehicles that run on diesel fuel, not to mention farming operatons that use diesel fuel, we are going to see the rate of inflation continue to decline, even with the nearly continuous upward revisions.
The Fed has two more CPI and PPI reports being released before their September meeting, not to mention one PCE report.
I would imagine these reports will give the Fed more confidence in lowering interest rates by a quarter percentage point.
Everyone knows that energy prices and rent prices are the single biggest drivers of inflation.
Energy prices are clearly on the decline and even rent inflation cooled to 0.2% MoM in the last CPI report.
If energy prices continue to decline and rent inflation cools again over the next two reports, we’ll see the rate of inflation MoM and YoY decline quite a bit over the next several inflation reports.
Of course, that is if oil, gasoline and diesel futures don’t recover all of their recent losses in short order.
The Fed wants to sustain the artificially elevated equity markets by replacing expiring 1-year BTFP loans. The loans were discounted 1.5 percent at the end of October, when the Fed was projected to cut FFR 6 times.
1-year Treasury yields are down 1 percent on Fed rumors and Treasury Department intervention. If the Fed announced a 0.5 percent cut, it could achieve their goal, without lowering rates an additional 1 percent, before the elections.
Last year, corporate investors began to drain the Fed’s $2T repo, but equities remained neutral. When BTFP loans were discounted, hedge funds purchased market options, that led to a 33 percent rise in S&P over 10 months. S&P margin debt reversed its fall, and began an upward spiral. The overall market plateaued in March, when BTFP loans ended, and repo was drained. After March, the market churned in favor of a few tech stocks, and indexes that held them.
The 33 percent vector slope in S&P equals the ascent after the lows of the pandemic. But, a third the length of $6T pandemic relief.
Unlike pandemic QE, BTFP liquidity is temporary. The Fed fixes transitory BTFP with 1.5 percent QE. But, the market will eventually churn at March levels, unless the Fed adds additional fiat. Will investors want to reissue options at artificially inflated levels, just to trade neutral.
Now, the Fed lacks political culpability to lower rates. If hedge funds continue to close options early, the Fed will have to lower rates 0.5 percent in September, to influence elections.
“There have to be a few members of the FOMC who believe that they are now behind the curve on policy…”
National debt just hit 35 trillion. Government spending keeps pushing against a change of policy.
Disposable Personal Income is $21T testing Mar 2021 high. Mortgage debt is $12.5T. Renters don’t pay mortgages. Many homeowners are mortgage free or almost mortgage free. Thus the ratio : mortgage debt/ disposable personal income is 60%, much lower than in 2008, — not as bad if a husband and wife, or a family with grown kids cluster together in one household, covering mortgage debt, — but not good enough !
If the Fed cuts rates, when demand for highly skilled workers will be high, disposable
personal income will rise to a new all time high. A husband (or a wife), not a husband and wife, or whole family clustered together, will be able to buy a house and feed a family.
Basically – – – Reaction to the weather should not be the same as reaction to climate change.
Indeed, 50 point cut.
If Trump loses I am not confidence at all in a peaceful transfer of power. If Trump wins BLM and the pro Palestinians might start a destructive deflation.
Timmy was Obama’s and Al Sharpton’s puppet who sacrificed Minneapolis. For his loyalty he was rewarded handsomely.
0-.25 is my base case. The economy has picked up steam every time the intermediate through long bond has fallen. It hasn’t mattered if the ebbs have been higher lows + higher highs or the opposite. Low rates led to the economy picking up steam, Fed officials open their mouths with hawkish rhetoric, long end follows economic data up, causing restriction, leading to soft economic data.
We are now at the low rate section. Mortgage apps will improve, refinances will save consumers some cash for spending on goods and services instead, auto loans will be cheaper, and, maybe most importantly, the cost of capital to small businesses will give some relief as well as lower the hurdle rate for new investments.
Bottom line, the bond market has already done the job for the Fed and in short order. The cure for high rates is higher rates, and the cure for [the need for] low rates is lower rates. Let’s go S&P6000 🙂
Japan’s inflation rate Y/Y plunged from 0.5% in 2019 to (-)1.2% in Dec 2020. It popped up from negative rates to 4.3% in Jan 2023, before decaying to 2.8% in June 2024. The Japanese yield curve rates from the front ent to the long duration are paying negative rates in real terms. The BOJ plans to unwind its bond portfolio. Since the 1980’s the”binary” inflation rate stood at around 2.5%/3.5% with a few negative pulses to (-)1%. Japan’s gov debt/gdp was rising from 80% to 257%, but at the same time deflating in real terms. On top of that the BOJ became a stock’s trader, collecting dividends, with realized and unrealized gains, diversifying with one trillion UST paying 4%/5% per year.
Tradingview : Japanese inflation.
Even if the Fed lowers rates by 1% it won’t reduce inflation. Lowering rates won’t reduce Homeowners insurance, auto insurance, medical insurance/medical costs (copays, deductibles, etc.) Costs of services will still be high as hourly wages have increased. Gas prices are still really high which affects transportation costs of goods.
Auto insurance appears to have peaked. I was surprised at all the insurance company beats this quarter. I haven’t dived in, but it looks like the insurance losses (which were the reason rates got jacked up 20%) have abated. Hiwnowners insurance is a function of weather plus replacement cost. Looks alright on the inflation front there. Medical inflation has been reasonable this year. Costs of services…. wage inflation has dropped significantly.
Any more?
Japan is now caught in the classic lose-lose position, with respect to interest rates, exchange rates, and the stock market, which means (IMHO) they have lost control. Imagine all those old folks on fixed incomes, and inflation running amok. The best they can do is wait for life support, and hope it ends,.Maybe the US bails them out. After all, Biden-Harris gave $239 million of your tax[ayer $$$ to the Taliban. A mIstake, my ass!
Few have even mentioned the damage the rain from Debby is doing. Cities with flooded streets are the norm now in the southeast during hurricane season. Expect more rises in your insurance costs. Maybe the government will wise up and let insurance companies manage risk across state lines instead of limiting them to a state by state basis.
https://www.accuweather.com/en/hurricane/slow-moving-debby-threatens-catastrophic-flooding-to-carolinas-virginia/1676605
Makes me wonder if the insurance companies prefer the current arrangement. I wonder if it’s more profitable to keep it limited to each individual State. The insurance lobby basically writes the insurance laws and regulations in Congress so it makes me think they like the current arrangement.
The prefer to keep it limited by state. That way they can charge what they want.
There has been some push to do nation wide but insurance companies have resisted. Not sure the public wants that either as if you live in a fly over state do you really want to be subsidizing Florida hurricanes or California wildfires/mud slides etc.
Makes sense, thanks
Exactly this. Why should I subsidize people who own property in disaster prone areas/states? Nevada homeowners insurance is cheap because there are few disasters here… And I’d like it to stay that way.
Do you think it is remotely possible that insurance responds to state borders because the laws, legal decisions, and juries vary by state?
People prefer to pretend it isn’t happening; and if it is happening, it’s all natural; and if it isn’t all natural, it isn’t a big deal; and if it is a big deal, then it’s all the fault of those nasty scientists, who never warned us this would happen.
Then they start to sh*t on the Insurance companies for raising rates or refusing to even provide insurance.
Or maybe people have moved south and built monuments to themselves in areas of high risk thus increasing claims. In the past trees fell, beaches eroded and swamps flooded, no need for claims to be filed.
Casual, multi-peril insurance typically does not cover flood losses. The private market for flood insurance is getting bigger, but the big player is the National Flood Insurance Program. The NFIP has been making changes the last few years to cover catastrophic losses through co-insurance and other risk/loss sharing mechanisms. Bottom line: unless you have flood insurance, your flood damage is likely uninsured.
That would reward states that engage in bad behavior. If a state does not enforce laws then you have an increase in insurance claims for auto and property insurance losses. Some natural disasters can’t be helped but you can make the case that poor forest management techniques (in states where environmentalists have the last word) create a situation where the state is at fault for massive forest fires.
@ NC
Yes market should grasp. Which should cause the second wave of selling in USD/JPY possibly even before rate cut gets announced..
Japan is truly in a pickle as they need some buying power to purchase energy along with reining in some inflation pressure. JPY likely to stay sideways or gain strength against USD and every other Major currency as well.
They spent quite a bunch intervening and not wanting to reverse the gains in JPY at this point.
BOJ spokesman did so because JPY was strengthening far faster then they expected.
They still wish to have a stronger currency, just not all in a couple weeks.
It did give positions that were trapped a chance to get out. USD/JPY only spiked overnite but that spike appeared to get sold into as traders unwound carry.
Need to give it a couple more days. If it goes back to 150 then carry is being put back on and negates what here is posted.
My 2 cents
Thanks. I’m wondering at what point Japan puts their own interests ahead of the demands of the speculators.
The government intervening in anything usually does not turn out as anticipated.
Thumbs up on that.
It looked to me like they were intervening just as market was topping so instead of my funds getting clocked testing market Japan did it for me.
Been a nice ride so far with admittedly some anxiety.
Let’s be clear what carry trade really is. Correct me if I am wrong–it’s essentially an arbitrage with longer duration (than a 3-way currency arbitrage) involving two countries. It factors in relative interest rates (to borrow), exchange rates, and asset (market) performance. Oh, it’s leveraged? So that means it tends to be risky (gross understatement), unless there’s a bail out.
Would it have happened if central banks were not causing faux interest rates/exchange rates?
It basically is a way to benefit from long term interest rate differentials which occur because Central Banks are now the arbiters of what interest rates are going to be.
There are going to be other factors in place as well. But if a saver or Bank is earning negative rates in one country and can get positive rates in another then they sell the one and buy the second.
BOJ has been worlds biggest violator of market forces for some time as they attempted to break back of deflation in Japan.
This trade which has gone on for years and weakened the Yen from 80 to over 160 in USD/JPY is now having political costs associated with it in Japan proper.
Yen should strengthen for some time to come if they have not done so much damage to Industry that Japanese do not recover.
If there is indeed a Global recession in effect or starting the Yen will strengthen from that as panicked investors bring their monies and assets back to Japan.
We saw that back in financial panic of 2008.
If the Fed drops the rate by 50 BP, doesn’t that further compress the difference between Japanese rates and the US? Wouldn’t that further damage the carry trade?
The battle of the Kursk resumed after eighty years. 1,000 Ukrainian soldiers invaded
the Kursk.
Seems like a PR move. There’s no way they can support logistics with the Russian army having numerical and air superiority.
Pointing at victories in a battle, does not mean you win the war.
So, the DOW’s bubble high was over 40000. now heading for a 24000 bubble pop while flirting with the teens in between with some Wall Street high divers adding to the curbside fecal matter body count. Good. . . .
Ouch! It is not unusual to see a few ‘jaggies’ at the top of acycle. The smart people have left for the high ground, leaving the hopeful long-term holders, and BTFDers.
Is this an ‘oh shit’ Minsky moment?
24000 is it? How have you invested to take advantage of this?
Did not someone say that in order to be an Employee of the Fed that they have to take “Behind-the-Curve Advanced Classes?”
The prerequisite is to be an acolyte of Keynes, if not a high priest
And it will stay that way until you invent a time machine for them. Hurry up Heartland!
[1M] SPX peaked in July. It’s down for technical reasons. Jan 2022(h) @4,818.62. The Dow, SPX and NDX are well above 2021 and 2022 highs. A new phase in the ME war might ignite inflation again.
As the inflationary depression engulfs and devours the country, I don’t think a point or two in the interest rate either way will make any difference.
That’s about the millionth time I have heard that in the last 50 years. Still waiting for it. This time its for sure. Right?
re: “Data is weakening fast”
N-gDp drops sharply after July. That’s why stocks are falling.
Are we talking the same BIASED Fed that kept interest rates at/near zero for most of Obama’s two terms (at 0.43% on November, 2016), and then hiked them continuously for Trump’s term until July 2019?
Seriously, though, if the Fed succumbs to Wall Street, what is the message?
Japan going from 0% to 0.25% causes a global crash is also a ‘message.’
If ever there was a time for ‘hands off’ and let the markets determine interest rates, this may be it. Otherwise, expect Fed meddling to get worse.
Exactly. The reason that renters are being crushed is exactly because the Fed keeps kowtowing to Wallstreet. Counterintuitively, in the long run, the Fed keeping rates right where they are at is the best way to make amends for what they did during the pandemic. They need to make it clear to Wallstreet that the Fed put is dead.
The problem (I think) is how the Fed can bail out the BIG banks, and skip the rest. There is no way the US can withstand a massive bailout, and do what it did in 2008 (bailout out European banks)
You left out the Atlanta Fed 2.9% Q3 GDPNow estimate in your list of data points.
Actually, he has mentioned that in previous posts. Along with the likely downward revisions.
My forecast: GDP between 0.1 and 2%
Is that real or nominal GDP?. Because one of them has a high probability of being negative.
Energy markets are moving higher in price at this time. Timing of move suggests it is related to geopolitical events in Mid East and in Ukraine-Russia conflict arenas.
The stagflationary scenario still very much in play.
This limits the ability of not only Fed but other Central banks such as BOJ to ease at will as they have in the past whenever economic conditions have weakened.
This is one of the unknowns as to outcome which will hamper scope of rate cut extent.
Even if things deteriorate more then general consensus, throwing money at it, is not an open ended solution.
Yen carry trade although it got a green light when a BOJ official came out with the expected assist ( did not know what form it would take, just that it had high chance of happening) will be limited by Japans inflationary impact on its economy of rising energy costs. This will occur across the globe as few countries have energy independence.
afterthought: That Canadian dollar keeps strengthening third day in a row supports the notion energy markets are poised to go higher.
It is moving with crude.
Disagree. The C$ moves in relation to actual oil prices; not in anticipation of where they “might” go. It DOES move in anticipation of BOC and US Fed moves.
Crude futures am looking at say
04/06/24 Low was 73.20
08/05/24 Low was 72.90
08/07/24 currently 75.41
Could be a technical bounce, Heat builds in Mid East and Oil should move higher.
BOC has been easing and there was an abrupt change in direction since Monday tad below 1.3950 trades now 1.3759
Only thing really changed was Mid east with the double assassinations..
Even with today’s equity market reversing to a loss from a bounce which paired some of Cad gains on day.
Rare for currencies go big directional as there are so many factors in total market. Except for long time frames getting a macro call right.
But that is trading.
For now if Mid east blows up am set to add to my EURO/CAD short on energy for Cad. I trade directional when the call is based on something unexpected having occurred.
1.3950 USD/CAD which is bell-weather pair.
Oil prices have been dropping for the past month, off over 10% now. What kind of “moving higher in price” are you seeing?
My reading on Japan is that they have to move in the direction they’re moving, they’re just giving the carry trade idiots more time to unwind gracefully. This weekend showed how fragile the carry trade is. Anyone treating the Japanese retreat as a resumption of carry-trade “green light” deserves to lose all their money after this weekend’s events.
Past couple of days it has gone sideways and turned slightly higher.
This started shortly after Israel assassination and Iran threats to react.
The assassination is not going to get disregarded by Oil markets as large unexpected geopolitical risk was just introduced.
I made post addressing your second point in response to N C
Canadian Dollar has also quickly reversed a selling move.
All might be some market Technical reaction, but that Israel did knock off the mastermind who green lighted Oct 7, Hezbollah has had #2 knocked off and vowed revenge, does not bring the word Stable into play in Middle East.
add: recent short, small position EURO/CAD on possible geopolitical energy move and weakening Europe. got in near the peak
am short USD/JPY on a position trade which was added to twice on way down since peak in early July.
Appears to me, they are pushing a trillion dollars into the system via the bond market interest and the majority is just flowing back into the stock market.
They’d be better off lowering rates on that alone. Less interest – less market elevation, less market elevation – less spending, less spending – less growth, less growth – less inflation.
There is absolutely no economic support for a 50 basis point decrease in the fed funds rate in September unless the fed is pandering to wall street that has largely recovered from the recent sell-off AND for political reasons.
Political reasons? I’m shocked, shocked. Trump would boot Powell at the first opportunity. 1/2 point cut.
Yes. I will certainly be voting for Trump, but he will never do the right thing (austerity, cutbacks) because the history books will roast his legacy (not that they won’t anyway, so he might as well go down as a long-term savior in my view). So yeah, I think he will go straight for the sugar rush button again which is unfortunate. I almost want the Dems to keep one chamber to create gridlock for him.
Where is unemployment at Sep. meeting? What happens if they go 25? Its already too late but then they don’t “appear” as political. Not sure the “banking community” is dreaming of a Kammy Walz politburo.
The capitulation by BOJ this morning will bake in more inflation leading to hyperinflation. It is now unavoidable, worldwide.
It does not really matter anymore what the Fed does. Its too late. All the Kings horses and all the Kings men, yadda yadda yadda.
But for the record, I agree with you that the Fed will most likely do a 50 basis cut Sept 18.
@Mish “…The Fed probably realizes that now but it will not want to take a stance either way.”
Do you believe that this is the right thing for the FED to do?
(My impression is that the FED usually does the wrong thing, and they do it too late)
I think the Fed will over- or underreact. Although I expect recession (think one has started), and I think 50 bps in September is the right thing to do. After that, the Fed should wait and see.
I suspect they will act too fast after that. The Fed has a huge problem because there is a lot of inflation on deck no matter who wins the election.
It’s a tightrope. If the Fed achieves zero growth for two years, that may be the best they can do without stirring inflation.
Tough job!
I respectfully disagree Mish. I do not think the Fed should ease 50 bps in Sept. I think they should do nothing!
You get nothing!
https://www.youtube.com/watch?v=ymPpIzaanhY
I’m with Willy Wonka. The only way to stop speculation is ‘release the risk kraken.’ There was a time when there was a downside to .investing.
Biden stole Fizzy Lifting Drink.
fed only has one job. to keep ny money center banks that own it, alive. go look up who owns the NY FED. private bank. they will destroy regional banks, and CRE, and stock markets and more……….as long as their owners stay solvent and can make hay by buying those aforementioned regionals on the cheap. the rest of the business they jabber about and most jabber about is pure BS. go read creature of jekyll island……..or just look at shareholder owners of the nyfed.