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Rates were cut - fed funds 4.75-5.00%, bank reserves rate 4.9%, discount rate 5.0%. Treasury QT continues at the reduced level of -$25 billion/mo, but MBS QT remains at -$35 billion/mo. The QT & rate cuts can coexist so long as there is ample liquidity in the banking system.
Economy is moderately growing, the labor market is solid but not hot, the inflation is moving towards 2% average inflation target, the fed fund rate is above "neutral" rate (its value varies by sources). So, a policy recalibration was needed vs that since mid-2023. The future cuts may be 25 or 50 bps. Multiple rates cuts are likely in 2024 (there are only November & December FOMCs). But the return of ZIRP era is unlikely. Moreover, if inflation starts to rise, the Fed may reverse course.
Housing inflation as indicated by OERs is high but coming down. Issues are national housing shortage & homeowners with low mortgage rates staying put. Lower mortgage rates should bring things into a better balance.
Basel III banking changes (especially, the lower bank capital requirements) are a result of interagency negotiations & are now in the 60-day comments period. He declined to address changes to M&A regulations than Michael Barr is looking into.
The Fed doesn't consider itself to be behind the curve.
The Fed doesn't take into account the election rhetoric or politics.
P.S.: He was relaxed during the presser, which makes me a bit nervous! Seems like he had to work for the 50 bps cut and appeared relieved he got it through, with only one dissent.
Strange day. Santa Clause Jerome Powell gave the markets what they wanted - a 50 basis point rate cut and promise of more to come. Such ingratitude! Stocks fell. Gold fell. Silver tumbled hard. Miners fell too. Looks to me like intermediate and longer-term rates held fairly steady. (The GNMA I track declined slightly.) Looks as if the dollar strengthened on the news. Not what one might expect on a rate cut. Maybe there’ll be a “big bang” (strong reaction) tomorrow? Upside? Downside? Anybody want to place a bet?
@Sven, Powell did say that dot-plots showed multiple cuts in 2024, and there are only 2 FOMC meetings left. So, more 25-50 bps cuts are coming in 2024. The 2-yr was at 3.61%, meaning sharply lower fed fund rate in months ahead.
Ironically that investment grade bonds of all duration fell while high yield bonds held up.
Along with that, utilities fell. VPU off -.78% / Often utilities move in concert with longer dated bonds.
Pushing on a string comes to mind. Try to lower rates across the duration spectrum (ie: Powell’s reference to making home mortgages more affordable) by cutting the overnight discount rate. But you might push longer term rates higher if those cuts are perceived as inflationary.
Comments
Rates were cut - fed funds 4.75-5.00%, bank reserves rate 4.9%, discount rate 5.0%. Treasury QT continues at the reduced level of -$25 billion/mo, but MBS QT remains at -$35 billion/mo. The QT & rate cuts can coexist so long as there is ample liquidity in the banking system.
Economy is moderately growing, the labor market is solid but not hot, the inflation is moving towards 2% average inflation target, the fed fund rate is above "neutral" rate (its value varies by sources). So, a policy recalibration was needed vs that since mid-2023. The future cuts may be 25 or 50 bps. Multiple rates cuts are likely in 2024 (there are only November & December FOMCs). But the return of ZIRP era is unlikely. Moreover, if inflation starts to rise, the Fed may reverse course.
Housing inflation as indicated by OERs is high but coming down. Issues are national housing shortage & homeowners with low mortgage rates staying put. Lower mortgage rates should bring things into a better balance.
Basel III banking changes (especially, the lower bank capital requirements) are a result of interagency negotiations & are now in the 60-day comments period. He declined to address changes to M&A regulations than Michael Barr is looking into.
The Fed doesn't consider itself to be behind the curve.
The Fed doesn't take into account the election rhetoric or politics.
There were new SEPs.
https://ybbpersonalfinance.proboards.com/post/1660/thread
P.S.: He was relaxed during the presser, which makes me a bit nervous! Seems like he had to work for the 50 bps cut and appeared relieved he got it through, with only one dissent.
Strange day.
Santa ClauseJerome Powell gave the markets what they wanted - a 50 basis point rate cut and promise of more to come. Such ingratitude! Stocks fell. Gold fell. Silver tumbled hard. Miners fell too. Looks to me like intermediate and longer-term rates held fairly steady. (The GNMA I track declined slightly.) Looks as if the dollar strengthened on the news. Not what one might expect on a rate cut. Maybe there’ll be a “big bang” (strong reaction) tomorrow? Upside? Downside? Anybody want to place a bet?Will there be more cuts coming this year? The days of holding money market yielding 5% will likely coming to an end sooner than one thinks.
Pushing on a string comes to mind. Try to lower rates across the duration spectrum (ie: Powell’s reference to making home mortgages more affordable) by cutting the overnight discount rate. But you might push longer term rates higher if those cuts are perceived as inflationary.