Barrons thoughts on upcoming Fed actions

MikeM

I found this piece from Barrons interesting and thought I'd share. Inflation is dropping and the anticipation of rate cuts is influencing investments. Also sheds light on the expected SS increase for 2025.

CPI Figures Tee Up September Move for Central Bank

Cooler than expected inflation in July prompted traders to lower the odds of the Federal Reserve cutting interest rates by a half point in September. But Wednesday’s inflation news did clear the runway for the Fed to begin cutting rates, and the size of the September move could depend on labor market data yet to come.

Traders are pricing in a 37% probability that the Fed lowers rates by a half-point after its meeting next month, according to the CME FedWatch tool. The probability was greater than 50% just a day earlier and even higher one week ago. The tool sees a 63% chance of a quarter-point cut.

The Fed might not stop there. Traders expect additional cuts at the two other meetings this year, putting a 44% probability on the Fed cutting rates by a whole percentage point by the end of the year. That implies two additional quarter-point cuts if the September cut is a half-point.

July’s consumer price index rose 2.9% from a year ago, slower than the 3% gain expected. Core inflation not counting food and fuel rose 3.2%. The cost of housing accounted for 90% of the increase in consumer inflation last month.
A broad array of products and services showed price drops, including airfares, down 1.6% from June, men’s suits, sport coats, and outerwear, down 4.2%, and used cars and trucks, down 2.3%. Prices for video and videogame rentals and subscriptions rose 7.6%, while hot dogs rose 4.4%.

What’s Next: The Social Security cost-of-living adjustment for 2025 could shrink to 2.6% from this year’s 3.2% increase, according to Mary Johnson, an independent Social Security and Medicare analyst and former analyst with the Senior Citizens League. In July she forecast adjustment to be a 2.7% increase.

BaluBalu

IMO, Fed is not going to drop FF rates in a hurry to 4% or below, unless it sees long term inflation expectations dropping to 2% AND r* at 4% or lower. I can make a case for a total of 50 bps or less cuts this year.

I am surprised the article focuses so much on dropping inflation alone.

JD_co

BaluBalu said:

IMO, Fed is not going to drop FF rates in a hurry to 4% or below, unless it sees long term inflation expectations dropping to 2% AND r* at 4% or lower. I can make a case for a total of 50 bps or less cuts this year.

This was along my line of thinking as well, but the market seems to be pricing in a bit more. It's not like corporate earnings are hitting it out of the park, and the consumer is wavering.

The overall positive vibes continue (despite last week's blip.) The bull market marches on.

yogibearbull

This looks like a part of the Live Barron's coverage of the CPI release this week,
https://www.barrons.com/livecoverage/cpi-inflation-july-report-data-today/card/benign-july-cpi-sets-up-another-good-report-on-fed-s-preferred-inflation-gauge-2xknEUdp9QVIeDRKFj44

Live Feed Articles https://www.barrons.com/livecoverage/cpi-inflation-july-report-data-today?mod=lc_navigation

Sven

Things look brighter this week. 50 bps or less for this year sounds reasonable unless the labor market turns really bad with massive layoffs. We see a few but nothing wide spread as in 2008’s GFC.