Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
(My PC decided to have an update around 1:00 PM, so the posting of some FOMC Statement links via phone had an incorrect date. This was corrected where possible.)
Rates: Fed funds cut 25 bps to 4.25-4.50%, bank reserves rate to 4.40%, discount rate to 4.50%. Treasury QT continues at -$25 billion/mo, MBS QT at -$35 billion/mo.
Powell gave a long explanation to why the rate was cut today & why the pace of cuts may be slower in 2025 (maybe 2 cuts). We are closure to the neutral rate (an unknown) but it’s different for the short- & long- term. If necessary, rates may even go up but that seems unlikely now.
Inflation is sticky in the 2.50-3.00% range due to housing (via OERs) & insurance (delayed catchup), but it may be +2.5% in 2025, +2% by 2027. The Fed’s targets apply to the headline PCE, but core PCE is better for the Fed policy.
Tariffs’ & counter-tariffs’ impacts will be evaluated when they come. The expectation is that their inflationary effects will be one-time. There was a Fed study on tariffs in 2018 & that will be updated.
Mortgage & other longer term rates haven’t come down because those are affected by several other factors.
Labor market has cooled, unemployment rate is 4.2%, labor turnover is low. The public is unhappy with high prices, but lower inflation doesn’t mean lower prices. At some point, with wage growth remaining above the inflation rate, the public sentiment may turnaround. Further cooling in labor isn’t expected to make further progress on inflation.
Geopolitical risks are high but their impact on the US economy would be via the oil prices that have been weak.
There was a question about the level of the stick market, but Powell ignored it (markets fell sharply). He said that 2024 has turned out to be a good year contrary to the earlier projections and 2025 should also be good.
I've got a major supply of sticks. How many did you want? FREE + S&H.
As @rforno alluded to one analyst I follow noted "You can't really buy energy, utilities, healthcare, REITs, industrials, transports, etc. since many of the component stocks are tax-loss candidates." I agree and expect that to continue through the end of the year. However, as noted in the Buy-Sell thread, I do shop the sales.
@yogibb, thank you for your detail report on FOMC meeting today.
The negative reaction from the stock and bond markets to the rate cut is not unexpected. The market will likely to stay volatile now that the government revisit a potential shutdown right before the holidays. Warren Buffett is smiling …
I have never been able to know what is a one time effect and what risks being a spiraling effect. If I tariff you, do you tariff me more? If you tariff me more, do I tariff you even more? Or, if I tariff you, do you just do nothing or, maybe, tariff me in kind? And, I'm not sure how much the effect of such things will be.
Simple - if the price of a widget costing 100 US$, goes up by 20% due to tariff, 120 US$ becomes the price there after - magic - one time price increase and then no cost increase.
@Anna: “I tariff you, you tariff me,” sounds like something we might indulge in at the end of the office holiday party! It would take our minds off of interest rates and market volatility, and it might be good exercise.
Comments
Sticky inflation that refuses to drop to 2% target which is artificial anyway.
Either that or Y-E selling has started really eagerly given the runup in recent weeks....
(My PC decided to have an update around 1:00 PM, so the posting of some FOMC Statement links via phone had an incorrect date. This was corrected where possible.)
Rates: Fed funds cut 25 bps to 4.25-4.50%, bank reserves rate to 4.40%, discount rate to 4.50%. Treasury QT continues at -$25 billion/mo, MBS QT at -$35 billion/mo.
Powell gave a long explanation to why the rate was cut today & why the pace of cuts may be slower in 2025 (maybe 2 cuts). We are closure to the neutral rate (an unknown) but it’s different for the short- & long- term. If necessary, rates may even go up but that seems unlikely now.
Inflation is sticky in the 2.50-3.00% range due to housing (via OERs) & insurance (delayed catchup), but it may be +2.5% in 2025, +2% by 2027. The Fed’s targets apply to the headline PCE, but core PCE is better for the Fed policy.
Tariffs’ & counter-tariffs’ impacts will be evaluated when they come. The expectation is that their inflationary effects will be one-time. There was a Fed study on tariffs in 2018 & that will be updated.
Mortgage & other longer term rates haven’t come down because those are affected by several other factors.
Labor market has cooled, unemployment rate is 4.2%, labor turnover is low. The public is unhappy with high prices, but lower inflation doesn’t mean lower prices. At some point, with wage growth remaining above the inflation rate, the public sentiment may turnaround. Further cooling in labor isn’t expected to make further progress on inflation.
Geopolitical risks are high but their impact on the US economy would be via the oil prices that have been weak.
There was a question about the level of the stick market, but Powell ignored it (markets fell sharply). He said that 2024 has turned out to be a good year contrary to the earlier projections and 2025 should also be good.
LINK
As @rforno alluded to one analyst I follow noted "You can't really buy energy, utilities, healthcare, REITs, industrials, transports, etc. since many of the component stocks are tax-loss candidates." I agree and expect that to continue through the end of the year. However, as noted in the Buy-Sell thread, I do shop the sales.
Does he mean 'transitory'? Because that worked out well last time......
The negative reaction from the stock and bond markets to the rate cut is not unexpected. The market will likely to stay volatile now that the government revisit a potential shutdown right before the holidays. Warren Buffett is smiling …
It's like they never got out of puberty....
"My tariffs are bigger than your tariffs. So there!"