Rate Cut is Coming per Fed Reserve

Well dang, I could have sworn Powell talked about possible rate cuts at Jackson Hole. He didn't say it in what is written. I stand corrected.

From July 2023 to July 2024, the PCE and Core PCE are virtually unchanged:

July 2023
PCE 2.6%
Core PCE 2.6%

July 2024
PCE 2.5%
Core PCE 2.6%

The CPI and Core CPI are well above what the Feds want to see too.

Apparently, the only reason for the Feds to shift positions is the 818,000 historically large jobs lack of growth adjustment. The next round of index data including the unemployment rate could have an impact on a September decision.

I know Powell says it time, but what if the next round of data doesn't support it? If time is now the issue and the index data doesn't support the decision, then any September rate cut will be for political reasons, not a good look for the Fed after dragging its feet to raise rates to fight Bidenflation.

 

I may be wrong, but I don't think Powell is doing it for political reasons. A quarter-point cut in September won't change things overnight and if we are facing a problem with employment, a quarter point is not enough to turn the tide in a meaningful way. I think the reason for the cut is employment, but Powell well knows that one or two cuts is not enough to deal with that and is attempting to tee it up for the next Fed chair (if he is replaced) rather than sitting and doing nothing. Unemployment has been steadily increasing for a year, but what's more is that learned economists understand that every time employment peaks, there is always a sharp rise in unemployment not long after.

 

Again, just looking at snapshots is a fool's errand. It doesn't tell you which way the trends are moving. A 2.9% inflation rate and 4.3% UE rate may cause the FED to cut or raise. All depends on which way the rates are moving. When the inflation rate is falling and UE is rising and hit 2.9% and 4.3% respectively, then it may be time for rate cuts. Which is what the FED has been saying for two years. That when the metrics hit close to these numbers, there will be rate cuts. That didn't happen in 2023 and the first half of 2024. But we are here now.

It's also an incredibly myopic view to ignore what's going on in the global economy, of which the US is a major player. When half of EU countries are suffering double digit inflation, and 95% of the world's countries are seeing the highest inflation in 4 decades, what kind of idiot ignores these numbers? One that doesn't want to admit that the inflation under Biden was a global phenomenon and Biden wasn't blame for the majority of price increases. It's either intellectually lazy and/or dishonest. Either way, it doesn't change the fact that inflation was global. Or the US inflation rate was actually lower than most of the world.

Last, if you are really concerned about inflation, don't elect Trump. Don't take my word for it, but the word of 16 Nobel Prize winning Economists. It's simple economics. Tariffs would be passed along to consumers and cost average households between $1,800 and $4,000 a year. And the labor shortages caused by deporting 8 million workers in the US, including large percentages of those working in agriculture and construction will cause similar shortages we saw during the end of the pandemic. It will also cause a drop in GDP.

 

That must make you really love them, then, right....since Bankruptcy Boy Don called for rate cuts for at least 3 years. Even as he was ballooning the deficit and the economy was pretty strong.

I mean, calling for rate cuts is bad right? Or only has been for the past year?

In addition to being a total hypocrite, you're pretty much wrong about EVERYTHING. I mean, you support THIS guy, LOL. What a moron.




Donald Trump insists he would be able to wipe out the United States’s debt in eight years.

The Republican presidential front-runner said in a wide-ranging interview with The Washington Post that he’d be able to get rid of the more than $19 trillion debt “over a period of eight years.”

Trump insisted in the interview that “renegotiating all of our deals” would help pay down the debt by sparking economic growth.

“The power is trade. Our deals are so bad,” Trump said. “I would immediately start renegotiating our trade deals with Mexico, China, Japan and all of these countries that are just absolutely destroying us.”

https://thehill.com/blogs/ballot-bo...03-trump-i-will-eliminate-us-debt-in-8-years/

 

What Trump was proposing was essentially the repudiation of US debt not unlike the way he was able to eliminate debt in his private sector enterprises essentially declaring by bankruptcy and renegotiating the debt for pennies on the dollar. The proposal demonstrated the ignorance of the stable genius yet he was able to con enough American voters to win the presidency and he may be able to do it again.

 

Given the current data climate it’s not a political move. There has been enough progress to start to “normalize rates”. They don’t need to go fast just a bit here and there.

Likely 25bps Sept, Nov And Dec, unless something really bad happens.

 

Before the PCE is published tomorrow morning, first let's clean up the 2nd quarter GDP:

Gross Domestic Product (Second Estimate), Corporate Profits (Preliminary Estimate), Second Quarter 2024 | U.S. Bureau of Economic Analysis (BEA)

Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the second quarter of 2024 (table 1), according to the "second" estimate released by the U.S. Bureau of Economic Analysis. In the first quarter, real GDP increased 1.4 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.8 percent. The update primarily reflected an upward revision to consumer spending (refer to "Updates to GDP").

3.0% GDP does not indicate a recession.

It'll be interesting to see the PCE on Friday morning and how the previous PCE was revised.

 

So we see an adjustment in Real GDP upward to 3.0%, while the second quarter PCE was revised downward to 2.5%? Wow, tough economy out there...

 

PCE slightly up, PCE +.1:

Personal Income and Outlays, July 2024 | U.S. Bureau of Economic Analysis (BEA)

I know what Powell said coming out of Jackson Hole 2024, seems like an excuse for a vacation on taxpayer's dollars to me, I'm still sticking with no rate cut in September:

Price indexes: Percent change from preceding month

2024 Mar. Apr. May June July

PCE 0.3 0.3 0.0 0.1 0.2
PCE, excluding food and energy 0.3 0.3 0.1 0.2 0.2

Price indexes: Percent change from month one year ago

2024 Mar. Apr. May June July

PCE 2.7 2.7 2.6 2.5 2.5
PCE, excluding food and energy 2.8 2.8 2.6 2.6 2.6

What is significant is that the Feds preferred inflation index, Core PCE, has been sliding sideways for 3 consecutive months. It is still .6% higher than the 2.0% target.

Combining the PCE with the 2nd quarter GDP being revised up yesterday from 2.8% to 3.0%, the data isn't coming in as a sustainable downward trend that the Fed previous to Jackson Hole said they wanted to see before cutting rates.

Still to come is the August PPI, CPI, and unemployment rate. However, other than the 818,000 jobs revision over the last year which could be revised again later, the economy and rates appear to be in equilibrium, no recession indicated and no need to reduce rates at this time.

The unemployment rate will have to take another jump higher to justify a rate cut. I just can't see rates falling back to the 2.5% range the markets are clamoring for.

The US economy and financial system does not appear to be in jeopardy of imminent collapse even though that is what Wall Street and doomsayers wants you to believe. The Fed so far, other than starting the inflation fight too late, has been doing a masterful job of creating a soft landing after the poor policy decisions of the Biden Administration delivered economic misery to the American people.

 

Mortgage rates went down again with the avg rate of 6.35%, last year it was 7.18%. Banks do this in anticipation of a rate decrease by the feds. With unemployment on the rise, I think they have to decrease rates by at least .25%. They are a little late imho.

 

Reducing rates isn't a panacea. After 11 of the last 15 rate cuts, a recession followed. However, I don't think it likely this time.

What I think is more likely is that rates will fall enough to pull buyers into the housing market which will lead to higher home prices and higher inflation just as the Fed is about to cross the finish line of cleaning up Biden's mess on aisle 13.

A .25% rate cut would be insignificant, just don't think it's needed without a move above 4.5% and closer to 5.0% unemployment. In the not so old days, up to 5.0% was considered to be full employment:

Is the US Economy at Full Employment? (yahoo.com)

In the SEP (Summary of Economic Projections) released in June 2015, policymakers at the US central bank expect the central tendency on the longer-term unemployment rate to be between 5.0%–5.2%. In July 2015, the unemployment rate in the US stood at 5.3%. So, the US labor market is quite close to what central bankers consider to be full employment.

 

You're not done yet? Weird.

 

The data coming in is not done yet.

 

For those interested in what economists are generally saying, the PCE report was slightly better than expected, due to the month that was going to drop off being very low in inflation (in fact, deflationary, if I remember correctly). At this point, inflation outside of the implicit cost of housing, in which prices are directly increased, not decreased, by interest rates, has hit the Fed's target. As such, almost nobody believes that they won't be cutting rates slightly next month. Given the current economic strength, it likely won't be a huge cut, but a small one.