Current Market expectations for Fed Rate Cuts…
-Sep 18, 2024: 50 bps cut to 4.75-5.00%
-Nov 7, 2024: 25 bps cut to 4.50-4.75%
-Dec 18, 2024: 25 bps cut to 4.25-4.50%
-Jan 25, 2025: 25 bps cut to 4.00-4.25%
-Mar 19, 2025: 25 bps cut to 3.75-4.00%Video: https://t.co/PU3gn1fTbD pic.twitter.com/xuqDaimCyG
— Charlie Bilello (@charliebilello) August 7, 2024
The Federal Reserve is preparing to cut interest rates as signs of cooling inflation and a weakening labor market emerge. While the central bank aims for a soft landing, recent indicators suggest challenges ahead. Mary C.
Fed’s Schmid Says ‘We Are Not Quite There’ in Cooling Inflation
➡️“We are close, but we are still not quite there”
➡️“Overall, the labor market still appears healthy”
IMO, excessively backward looking but illustrating why Fed unlikely to slash rates
— Gregory Daco (@GregDaco) August 9, 2024
Daly, president of the Federal Reserve Bank of San Francisco, highlighted the need to understand whether the labor market is slowing significantly or just normalizing. She stated, “We’re at the point of — is the labor market slowing a lot, or slowing a little?”
The Fed is in a lose-lose situation:
1. If the Fed cuts rates aggressively right now, markets tank further and they risk a resurgence of inflation.
Cutting US rates will only make the Yen carry trade unwinding WORSE, likely sending the Nasdaq into bear market territory.
2. If…
— The Kobeissi Letter (@KobeissiLetter) August 7, 2024
Key members of the Fed have indicated that rate cuts are driven by broader economic factors rather than reactions to market fluctuations. Thomas Barkin, Richmond Federal Reserve President, emphasized this cautious approach as the Fed monitors economic indicators closely.
Daly expects interest rates to be cut later this year, depending on incoming information.
Fed considers September rate reduction
She said, “Policy adjustments will be necessary in the coming quarter.
But from my mind, we’ve now confirmed that the labor market is slowing, and it’s extremely important that we not let it slow so much that it turns itself into a downturn.”
As a voter on the rate-setting Federal Open Market Committee, Daly emphasized that policymakers will do whatever is necessary to achieve their economic goals. “We will do what it takes to ensure we achieve both of our goals: price stability and full employment,” she said. “We will make policy adjustments as the economy delivers the data and we know what is required.”
Chicago Fed President Austan Goolsbee commented that the central bank’s “restrictive” rate policy doesn’t make sense if the economy isn’t overheating, which he asserted it is not.
Goolsbee added that if there are signs of trouble in the economy, the Fed will “fix it.”
The coming weeks will be crucial in determining whether the Federal Reserve can achieve a soft landing or if the economy is steering towards a recession. The next Federal Reserve meeting on Sept. 18 will be pivotal in this ongoing economic saga.
- NYTimes.”Can Fed Officials Still Nail the Landing? As Rate Cuts Near, It’s a Moment of Truth.”.
- Reuters.”Fed policymakers signal rate cuts ahead, but not because of market rout”.
- CNBC.”San Francisco Fed President Daly sees interest rate cuts coming as labor market weakens”.