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Starting a new thread: Bloomberg Real Yield. (Begin, 08/08/25)
15 August, '25: What WILL the FED do in September? Inflation remains hot. Some are calling the situation, "stagflation Light." Where is the neutral rate, then? KELSEY BERRO: at the moment, rates are modestly restrictive, at 4,25-4,5%. KATHY JONES: Bessent is wrong. Rates as low as he is suggesting would be "fairly inflationary." There's room for a .25% cut in September. We need to see more data, to provide surer footing as to when and how much to do whatever. Anyhow, consumer spending is not "falling off a cliff." There's been a 10% drop in the value of the dollar. That should cause effects we are yet to see fully, too.
BERRO: Next payroll report will be a key item to watch for.
...Jackson Hole (already?!) next week. JONES: Uncertain outlook. Dunno what we should expect to hear from J. Powell. Inflation is still too high, with a hint in the numbers that it's moving higher, not lower. Still, the labor market is far from rolling over completely. But tariff effects have yet to be fully seen, too. There quite a lot of volatility in the statistics. BERRO: Powell will want for his remarks to NOT necessarily move the Market. The FED must remain data-driven.
From A.I.: The "top of the credit cycle" refers to the peak phase of the credit cycle, characterized by the most expansive credit conditions. During this phase, interest rates are typically low, lending requirements are relaxed, and the availability of credit is at its highest, stimulating significant economic activity and often leading to asset price bubbles, particularly in real estate and equities. This period is often associated with high risk appetite and strong economic growth, but it also sets the stage for a subsequent contraction as the cycle turns.
Characteristics of the Top (Expansion to Late Cycle): At the top of the cycle, companies and consumers are highly leveraged, borrowing and spending freely. Shareholders dominate corporate balance sheet management, encouraging higher returns on equity. However, this phase is marked by accelerating debt growth, and central banks typically begin to reverse their easy monetary policies by raising interest rates to combat inflation. Transition to Downturn: The peak of the credit cycle is inherently unstable. As economic growth slows and inflation pressures mount, central banks raise interest rates, which eventually tips the economy into a recession and triggers the downturn phase of the credit cycle. The high levels of debt and overvalued asset prices that developed during the expansion become unsustainable, leading to a tightening of credit, a collapse in asset prices, and a rise in defaults.
According to one of my sources the probability of a rate cut in September is near 90% as implied by Fed Fund Futures. The same source calls the prospect of a rate cut at the September FOMC meet “a virtual certainty.”
Should we be jumping with joy? I think not. There are a lot of big wheels and gears turning. A single rate cut shouldn’t have a lot of impact on markets or the economy. But if it turns into a trend it could. Might possibly forestall a recession or reduce the severity of an impending one. All conjecture.
The next releases for the PCE Price Index (Aug. 29), Employment Situation (Sep. 5), and CPI (Sep. 11) will be scrutinized and may affect the Federal Reserve's decision. The Fed hosts dozens of central bankers, policymakers, economists, and academics at the Economic Policy Symposium in Jackson Hole, Wyoming from Aug. 21-23. Chairman Powell's Jackson Hole speech is highly anticipated.
Thanks @Observant1 / Sounds right. The source I was citing (at near 90%) was a bit dated and referencing the early August probabilities - the 4th of August as I recall. That was much higher than early July (under 50%).
What are the chances Powell will announce his resignation, thereby allowing Trump’s new appointee to become the “fall guy” for the incoming recession? Wonder where those odds are published?
You're right—the probabilty for rate cuts was higher several weeks ago. The probability of a 50 bps cut was also calculated but this went to zero after the latest CPI data release. Powell will not announce his resignation nor should he.
Powell went along with Yellen, that inflation is transitory, remember? Since then, to my mind, he and the rest of the rate-setters have regained a great deal of credibility. Stand pat, I say.
Comments
What WILL the FED do in September? Inflation remains hot. Some are calling the situation, "stagflation Light."
Where is the neutral rate, then? KELSEY BERRO: at the moment, rates are modestly restrictive, at 4,25-4,5%. KATHY JONES: Bessent is wrong. Rates as low as he is suggesting would be "fairly inflationary." There's room for a .25% cut in September. We need to see more data, to provide surer footing as to when and how much to do whatever. Anyhow, consumer spending is not "falling off a cliff." There's been a 10% drop in the value of the dollar. That should cause effects we are yet to see fully, too.
BERRO: Next payroll report will be a key item to watch for.
...Jackson Hole (already?!) next week. JONES: Uncertain outlook. Dunno what we should expect to hear from J. Powell. Inflation is still too high, with a hint in the numbers that it's moving higher, not lower. Still, the labor market is far from rolling over completely. But tariff effects have yet to be fully seen, too. There quite a lot of volatility in the statistics. BERRO: Powell will want for his remarks to NOT necessarily move the Market. The FED must remain data-driven.
AUGUST, so far = a record for Leveraged Loan launches.
LYNHAM and O'CONNOR went back and forth re: Junk vs. I.G.
O'CONNOR said we are at or near the top of the credit cycle. What does that mean?
https://www.bloomberg.com/news/videos/2025-08-15/real-yield-8-15-2025-video
This period is often associated with high risk appetite and strong economic growth, but it also sets the stage for a subsequent contraction as the cycle turns.
Characteristics of the Top (Expansion to Late Cycle): At the top of the cycle, companies and consumers are highly leveraged, borrowing and spending freely. Shareholders dominate corporate balance sheet management, encouraging higher returns on equity. However, this phase is marked by accelerating debt growth, and central banks typically begin to reverse their easy monetary policies by raising interest rates to combat inflation.
Transition to Downturn: The peak of the credit cycle is inherently unstable. As economic growth slows and inflation pressures mount, central banks raise interest rates, which eventually tips the economy into a recession and triggers the downturn phase of the credit cycle.
The high levels of debt and overvalued asset prices that developed during the expansion become unsustainable, leading to a tightening of credit, a collapse in asset prices, and a rise in defaults.
Should we be jumping with joy? I think not. There are a lot of big wheels and gears turning. A single rate cut shouldn’t have a lot of impact on markets or the economy. But if it turns into a trend it could. Might possibly forestall a recession or reduce the severity of an impending one. All conjecture.
Sep. 17 FOMC meeting while there is a 15.4% probability that no action is taken.
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
The next releases for the PCE Price Index (Aug. 29), Employment Situation (Sep. 5),
and CPI (Sep. 11) will be scrutinized and may affect the Federal Reserve's decision.
The Fed hosts dozens of central bankers, policymakers, economists, and academics
at the Economic Policy Symposium in Jackson Hole, Wyoming from Aug. 21-23.
Chairman Powell's Jackson Hole speech is highly anticipated.
What are the chances Powell will announce his resignation, thereby allowing Trump’s new appointee to become the “fall guy” for the incoming recession? Wonder where those odds are published?
You're right—the probabilty for rate cuts was higher several weeks ago.
The probability of a 50 bps cut was also calculated but this went to zero
after the latest CPI data release.
Powell will not announce his resignation nor should he.
Not gonna type much. Hand surgery.
https://www.bloomberg.com/news/videos/2025-08-22/real-yield-8-22-2025-video