The Fed Shouldn't Cut Rates
This seems very obvious to me, but discussing with others seems that I'm the minority. The thesis is that it makes no sense to expect another rate cut in October:
- PCE inflation data is at +2.7% (https://www.bea.gov/data/personal-consumption-expenditures-price-index)
- Divisia M4 at 4.45% (https://centerforfinancialstability.org/amfm_data.php)
- GDPnow is close to 4% (https://www.atlantafed.org/cqer/research/gdpnow)
So why would a rate cut be needed? The main argument is re unemployment, but unemployment comes from Trumponomics and AI dislocating jobs, not something that the Fed can control or could manage, hence focus should remain on inflation.
What I am missing?
Have you ever listened to the business news? It’s all Tyrone Biggums rationalization about why the fed should cut rates. The main point of the Fed is checks and balances to control the money supply with full employment being a subservient goal which has to do to with mitigating the paradox of thrift. So what is the net money supply? It’s growth or shrinkage in commercial bank assets plus or minus growth or shrinkage of fed balance sheet. I don’t see banks shrinking yet and the fed is being a quantitative tightening pussy. So any rate cuts are due to Trump pressure.
BlackRock CIO also said that at least a 50bps cut should happen given unemployment concerns
FT view is also that the Fed should cut 1/2 times rates until EoY
don't think entire explanation is Trump pressure / intimidation
unemployment is now a bigger risk than inflation. have you seen the job markets? its brutal for people.
What???
PCE at 2.7%. Do you know the difference between headline and core? Core PCE has been running 0.1–0.2% MoM for months. Annualized that’s below target. You’re anchoring to year-over-year because you don’t understand base effects.
Divisia M4 at 4.45%. Do you even know what you’re citing? Adjust for velocity and it’s screaming contraction. Real broad money is negative year-on-year for the first time in decades. Credit growth is stalling, banks are tightening standards, and you’re saying 4.45% means “hot”?
GDPNow at 4%. Jesus. GDPNow is a model, not gospel. The actual economy, ISM manufacturing, has been in contraction 15 of the last 16 months, housing affordability is at a 40-year low, auto delinquencies are the highest since 2009. But sure, put all your chips on a nowcast that’ll be revised into dust.
Unemployment. “Trumponomics and AI.” That’s your excuse? Are you high? The Fed’s dual mandate is price stability AND employment. They don’t get to shrug off rising joblessness because you invented a political/tech boogeyman. Rising unemployment feeds directly into inflation expectations and demand destruction. This isn’t optional.
Rates are still restrictive. Real Fed Funds is ~2% positive. Yield curve has been inverted for 18+ months, which precedes recessions. The system is already buckling.
What are you missing? Common sense.
It’s frankly shocking to me some of you even have jobs.
thanks, I guess?
Powell directly said Tarrifs were an issue. The president willy nilly making up policy isn't a fake issue.
I’m hearing some neck scratching in this thread.
Yea if anything arguably should be a rate increase. Tarrifs and Trump just winging policy is causing issues. Get ready for 3 more years of this.
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