David Simon Elkoubi’s Post

Fed expects to cut interest rates this year, but wants to see "more good inflation readings" first. Despite expectations of rate cuts, the Fed is waiting for evidence that annual price increases are falling toward its 2% target. The economy's strength, with robust growth and a strong job market, means the Fed isn't under pressure to cut rates immediately. We'll see how this influences financing, demand, property prices, and market sentiment in the coming months.

The Federal Open Market Committee has a two-day September meeting starting Tuesday, Sept. 17 and winding up mid-day Wednesday. The expectations are for a quarter-point cut in its target Fed Funds rate. To review the last four years: The Fed cut its rate to around zero after the pandemic hit. Then a bunch of things made inflation flare up. In the spring of 2022, the Fed started raising rates every meeting until the summer of 2023, when it stopped. It has left the target rate unchanged at 5.25-5.50% and has watched inflation very slowly come down. Now, depending on which measure you like, inflation is down to where the Fed needs it or getting close. So the question facing the Fed in two weeks is whether to cut a quarter point or a half point. I think to go a half point several things would have to happen. The August jobs report comes out Friday. The consensus estimate is that the economy added 162,000 jobs in August. Generally, over 100,000 means the economy is growing. It the number comes in low, that might favor a half-point. The August consumer price index comes out a week from tomorrow. Although the Fed uses the PCE as its inflation measure, it sees the CPI. So if there is really low CPI number, that also may influence the Fed to go a half-point. The politics of this are interesting. It is not good timing for the Fed to have to make a decision like this a month before early voting starts in a lot of states. It kind of puts the Fed in a position of looking like it's putting its thumb on the scale. That's the Fed's doing. It has talked for two years about being data dependent and wanting to be really, really sure about things before it started easing up. In the words of Adam Smith, it is what it is.

The bet is now 50% probability of a quarter-point and 50% a half-point. If the Fed goes a half point, that suggests it thinks the economy is stalling. One number it may be looking at that is worrisome is the 3-month annualized change in in Q3 inflation in the Cleveland Fed model. The CPI is 1.19% and the PCE is 1.51%. Now, you could say that the Fed only looks at the core PCE, and that 3-month trend for Q3 is 2.18%, which is still on the high side of its 2% target. But if you are a little jittery about deflation, the CPI 3-month change of 1.19% is getting close. One of the things that props up the CPI is housing, which is a big chunk of the index, 30-40%. Housing isn't adjusted often in the index. So if a lot of apartments have flooded the market and rents are going down in many cities, then all of a sudden, when the CPI adjusts for that, we could see negative CPI numbers. Which would be a shock after four years of 2-3 years of high inflation. This is what I think the Fed is worrying about, that the official inflation statistics are masking deflationary forces. The Fed doesn't want deflation any more than it wants high inflation. Deflation has a tendency to make people wait on spending decisions, because you expect that something will cost less if you sit tight for a couple of months. If everyone does that, the economy will definitely go into a recession. The Fed doesn't want a recession when it is so close to its inflation target, so it may go a half point to give the economy some Red Bull. The other problem it has is political. Whatever it does will be viewed as helping or hurting a candidate. Cutting rates a half-point in September of an election year would be seen as helping Kamala Harris, because her party is in the White House. Of course, any cut will be perceived as such, even a quarter point, so Chairman Powell may decide in for a dime, in for a dollar. Powell's term as chairman runs through '26, and conventional theory says a Fed chairman cannot be fired except for some misconduct. But this has never been tested. It is unclear what theory of the Fed chairmanship Donald Trump will pursue if returned to office.

☎️☎️☎️ Powell and the FED 🇺🇸: Jerome Powell, Chairman of the United States Federal Reserve, has provided several significant comments on current monetary policy and its future prospects: 1. Maintaining rates: The Fed has decided to keep interest rates stable, indicating that more progress is still needed to reach the 2% inflation goal. 2. Reduction of quantitative easing (QT) and bond sales: Announced that in the coming months the pace of quantitative easing and bond sales will be reduced, to avoid causing disorder in the bond market and reduce potential stress in the money market. 3. Labor market and economy: Powell noted that the labor market remains very tight and that although current monetary policy is restrictive and is affecting demand, the economy and demand will begin to slow. This slowdown is seen as necessary to control inflation. 4. Future interest rate decisions: The Fed makes its decisions on a meeting-by-meeting basis, with no immediate expectations of raising rates. They would only consider an increase if they see that current policy is not enough to reduce inflation to the desired target. 5. Expectations about cuts: Powell mentioned that it is not appropriate to talk about lowering interest rates until they have greater confidence that inflation is returning to 2%. He indicated that to consider rate cuts, they would need to see three worse-than-expected inflation readings or an unexpected weakening in the labor market. 6. Market response: Markets have reacted positively to these comments, interpreting them as more dovish (favorable to monetary easing) than expected, which has led to a strong market rebound and a fall in the dollar. These statements reflect a cautious but flexible stance by the Fed, which remains committed to adjusting its policy as necessary to achieve its inflation and economic stability goals. #eeuu #inflation #FED #MonetaryPolicy #rates

The latest inflation reading of 2.9 percent - the lowest since March 2021 - has all but cemented the odds of the Fed starting to cut rates in September. According to the CME FedWatch Tool, which gauges the probability of changes to the Fed's policy rate based on 30-day fed funds futures pricing data, markets are currently pricing in a 100-percent probability of a first rate cut next month, with the only remaining question being whether Jerome Powell and his colleagues will start off with a modest 25 basis point cut or even bring the policy rate down 50 basis points in one fell swoop. The latter is currently given a 25-percent chance, as it seems more likely that the Fed will start off slow and gradually lower its policy rate over the coming months rather than be aggressive and risk sending the wrong signals. After all, a steeper cut at this point could be interpreted as a sign that the Fed is in fact more worried about the economy than it is letting on, potentially fueling the recession fears that briefly gripped Wall Street last week. The Federal Open Market Committee has kept the Federal Funds Rate steady at 5.25 to 5.50 percent since July 2023, putting the breaks on what has been the most aggressive tightening cycle since the early 1980s. Due to stalling progress progress in bringing inflation back to its target level of two percent, hopes of rate cuts beginning earlier this year turned out to be premature. Recent labor market data as well as the latest inflation readings indicate that the wait may soon be over, though, especially as Jerome Powell recently said that the Fed wouldn't wait until inflation is back down to two percent. "If you wait until inflation gets all the way down to 2 percent, you’ve probably waited too long," he said. "Because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below two percent." Selected text and graphic are © Visual Capitalist, 2024. All Rights Reserved, used with permission. © Mark S. Mandula, CLO BCR Learning, 2024. All Rights Reserved.

Fed held policy rates steady in the range of 5.25%-5.50%, following the June policy meeting. The revised Summary of Economic Projections, the so-called dot-plot, indicated the policymakers expect to cut rates only once in 2024, against a projection of three rate cuts in the March forecasts and down from two rate cuts widely anticipated. Fed Chair Jerome Powell also delivered hawkish comments during his post-policy meeting press conference, noting that "more recent readings on inflation have shown easing. So far this year, we have not got greater confidence on inflation in order to cut." "Will need to see more good data to bolster confidence on inflation,” Powell added. With the ‘Super Wednesday’ now out of the way, attention turns toward a fresh batch of top-tier US economic data, including the PPI report, which could raise doubts over the Fed’s hawkish outlook on interest rates. Gold price will likely remain at the mercy of risk trends and the US Dollar price action, in the aftermath of the key US events.

This week’s Federal Reserve meeting probably won’t result in an interest rate cut, but it will likely lay the ground for one in September, most economists predict. The Fed’s benchmark, short-term rate has stood at a 23-year high of 5.25% to 5.5% since July 2023 as the Fed waits for inflation to cool further. Annual inflation dipped in June to 3.0 % from 3.3% the prior month – far below the two-decade high of 9.1% in June 2022, but still above the Fed’s 2% goal. The core rate, excluding volatile food and energy prices, fell to 3.3%, the lowest since April 2021. Most economists expect only hints the Fed might consider a rate cut soon when its two-day policy meeting ends on Wednesday. They believe inflation is trending in the right direction and two more months of cooler inflation reports will give the Fed room to ease rates.

The Federal Reserve will likely keep rates where they are for July, and here's why: The Fed kicks off their 2-day meeting tomorrow, with their Statement and Jerome Powell press conference on Wednesday. The Fed is likely not going to cut rates at this meeting, but it's expected they will set the table for a September18th rate cut. Nick Timiraos, who writes for the Wall Street Journal, wrote an article last night* titled, "A Fed Rate Cut Is Finally Within View." In the article, Timiraos explains that a July cut would be too soon, but the Fed will likely prep the markets for a September 18 rate cut for three main reasons- 1. Inflation over the last quarter has shown progress and has given the Fed the confidence they need that inflation is going to get to their 2% target. 2. The labor market is starting to cool, with the unemployment rate rising each of the last three months and now at a level of 4.1%. 3. Powell's concern is waiting too long to cut rates and causing unnecessary economic weakness and a potential recession. Bottom Line- The Fed will most likely not lower rates, while acknowledging the progress on inflation, cooler labor market, and signs of a slowing economy. * https://lnkd.in/gPJEVAXz

Speaking yesterday before lawmakers Fed Chair Jerome Powell noted that its not just inflation concern anymore for the Fed is trying to correctly time the start of interest rate cuts. The rising unemployment rate and slowdown in hiring is now on the Fed’s radar as something to closely watch to make sure their higher interest rate policy does not hurt the labor market too much. The Fed is acutely aware of the widening split in the American consumer between those who have owned real estate and assets prior to the pandemic and have been able to benefit from locking in low borrowing rates and rising equity values and interest income, and those who do not own real estate or significant assets who have not been able to benefit from rising real estate and equity values and are net borrowers who are being squeezed from higher inflation and higher borrowing costs. For those who own equities the stock market has made 36 record highs in 2024 so far and appears poised to continue making records. The Fed meets next at the end of July and markets are expecting no rate change at that time, but are expecting Chair Powell to provide greater insight into how and when the Fed is thinking to start reducing rates. Markets are expecting the first cut at the Sept 18 meeting and now are pricing in 2 cuts by the end of the year. CPI and PPI inflation readings are due out this week Thursday and Friday and will provide the most current view on the path and pace of inflation. Core PCE inflation, the Fed’s preferred measure, stood at 2.6% for the month of May, down from 4.6% a year ago.