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Rates: Fed fund rate cut -25 bps to 3.75-4.00%, bank reserves rate at 3.90% (generous), discount rate at 4.00%. On December 1, the Treasury QT of -$5 billion/mo will drop to $0, & MBS QT at -$35 billion/mo to $0 but futures reinvestments will be in Treasuries (not MBS). Fed balance sheet has declined by -$2.2 trillion so far.
DC shutdown effects should be temporary. Lack of government data is a concern but for now, there are estimates from state and private data & surveys.
Tariffs effects should be one-time. They are in goods inflation, but not in services.
Inflation is sticky. Unknowable neutral rate may be between 3-4%. Financial conditions are restrictive despite huge capex seen in AI. Fed is more concerned about financial stability, not market levels.
Labor market has been soft. Announced layoffs by companies aren't showing in unemployment claims. Economy is bifurcated (like K) & there is more spending by higher income earners that by lower income earners.
Banking losses from low-rated debt are being monitored, but that isn't a broader issue.
"The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months."
It seems to me that the FOMC is favoring the employment side of its dual mandate. The PCE Price Index YoY has consistently exceeded 2% over the past twelve months. PCE increases for June, July and August¹ were 2.59%, 2.60% and 2.74% respectively.
If the market realizes that Fed rate cuts might be finished for the near-term, does that impact this bull run....or will the AI hype-train continue to chug along and carry the markets.
Feels like a number of future rate cuts are already factored in.
Comments
Rates: Fed fund rate cut -25 bps to 3.75-4.00%, bank reserves rate at 3.90% (generous), discount rate at 4.00%. On December 1, the Treasury QT of -$5 billion/mo will drop to $0, & MBS QT at -$35 billion/mo to $0 but futures reinvestments will be in Treasuries (not MBS). Fed balance sheet has declined by -$2.2 trillion so far.
DC shutdown effects should be temporary. Lack of government data is a concern but for now, there are estimates from state and private data & surveys.
Tariffs effects should be one-time. They are in goods inflation, but not in services.
Inflation is sticky. Unknowable neutral rate may be between 3-4%. Financial conditions are restrictive despite huge capex seen in AI. Fed is more concerned about financial stability, not market levels.
Labor market has been soft. Announced layoffs by companies aren't showing in unemployment claims. Economy is bifurcated (like K) & there is more spending by higher income earners that by lower income earners.
Banking losses from low-rated debt are being monitored, but that isn't a broader issue.
December FOMC looks very cloudy.
https://ybbpersonalfinance.proboards.com/post/2277/thread
It seems to me that the FOMC is favoring the employment side of its dual mandate.
The PCE Price Index YoY has consistently exceeded 2% over the past twelve months.
PCE increases for June, July and August¹ were 2.59%, 2.60% and 2.74% respectively.
¹ latest release due to government shutdown
oh, well
Feels like a number of future rate cuts are already factored in.