re: What day is the Fed going to announce the interest rate cut?

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SDVTiger

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You won. I’m pretty surprised to say the least, but I don’t think it really changes the terminal rate which is now the bigger deal.

Who is good?

Economists?

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I didnt win its just you and Bard cant understand data very well

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, I’ll let this slide today.

Your original post said it would be .5-1.00, and my 0% was more about the idea of it being even more, but I was still objectively wrong.

I am still surprised though. 50bps have come from emergency meeting during economic calamity, not soft landings. The messaging is going to be a problem.

I wasn’t against your take on inflation measures FWIW. I agree it’s plenty low enough for the 50bps.

Markets not liking what Powell has to say.

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I didnt win its just you and Bard cant understand data very well

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First off, a tip of the hat.



You were right and we were wrong. Your reasonings were wrong, but it still brought you to the outcome which actually happened.

As to the data... we understand that data extremely well. What we didn't understand was Powell's desire to play politics with rates and/or how scared they are of the carrying costs of the debt with Congress spending an average of $300B in deficit each month thus far this year. So what they're doing is juicing up the economy with more money while Congress is also flooding the economy with more money.

You don't raise nor cut by more than .25 unless there's an issue happening or you think one is about to happen. By going for .5 and then projecting at least another .5 by the end of the year, they're telegraphing that they think we're in for an economic downturn.

As to the political angle though, I mentioned it but I think it's a very unlikely point. Why? Because we won't see a positive impact on the prices of goods and services by November (if there is one). The only real impact we may see is housing prices going back up as a lot of buyers come off the sidelines. So if he was doing it at all for politics, he chose poorly.

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The after effects of the fastest hike in history.

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You must be young or new to this. I don't say that as a pejorative, but that anyone who has been around long enough and/or looked over this enough knows the Volcker hikes in the 80s made the COVID hikes look like speed bumps. Not only did Volcker raise rates to the highest point thus far in history (20%).

Powell raised rates a total of 4.25 points in 2022, in 1980 Volcker did around 2x that much in just the 2nd half of the year.

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And higher rates contributing to inflation.

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Inflation is a result of having too much money in an economy, the shorthand definition is "too much money chasing too few goods and services". Higher rates drain money from the economy by making it more expensive to borrow, thus higher rates lower inflation (not the other way around).

Conversely, lowering rates allows consumers and businesses to borrow more money at a lower cost, thus putting that extra money out into the economy.

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Especially if we try to fix the supply side. Higher rates will not help bring new supply of anything online. Homes, energy, manufacturing, etc.

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They aren't supposed to. Raising rates are like getting a tetanus shot after a rusty nail goes through your boot and into your foot: it hurts but it's done to prevent even worse pain later on.

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Spending is the problem.

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Bingo.

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And there shouldn’t be any big spending if the next 6-12 months with the election

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Have you met our Congress??? No one runs on spending less money. Ever. What they run on is that they'll "cut spending" but what they really mean is that they will cut the growth of spending (ie: it will still grow, just not as much but only as long as you vote for them
nudge-nudge-wink-wink).

Deficit spending for this year was estimated last year to be around $1.8T, we're already over $2T. That's an average of ~$250-$300B of deficit spending per month, even going with the low side ($250B per month) that would put us around $3T by the end of the year.

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so the fed probably saw a window to ease up a bit and continue trying for a soft landing

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There is likely some truth to that, but the ability for a soft landing in this is about as likely as the inflation was "transitory". A big issue is that federal debt servicing topped $1T last year, making it the 2nd largest spending category in the federal budget. With the deficit spending spree the federal government has been on this year, that carrying cost is only going to go up. The CBO projects that the interest on the debt will be the largest expense of the federal government by the end of the decade.

That said, it's likely that played a large part in their decision. Lowering rates lowers carrying costs, the problem is the amount of debt we're talking about, rates would need to cut far more just to get servicing back below $1T (enough that it would definitely kick us back into high inflation).

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You must be young or new to this. I don't say that as a pejorative, but that anyone who has been around long enough and/or looked over this enough knows the Volcker hikes in the 80s made the COVID hikes look like speed bumps. Not only did Volcker raise rates to the highest point thus far in history (20%). Powell raised rates a total of 4.25 points in 2022, in 1980 Volcker did around 2x that much in just the 2nd half of the year.

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I was alive during that period though not an adult. And yes, I realize the benchmark rates were higher, but the pace was not nearly as aggressive. This has been the fastest rate hike cycle ever. The baseline for the 80’s was completely different. Everyone knows that and ignoring that is disingenuous.

As easy math examples

10% to 20% is 100% increase… while

1% to 5% is 400% increase.

So, the pace and percentage is far more aggressive than Volcker.