MacroLab’s Post

Big news from the Federal Reserve today! In a widely anticipated move, the Fed cut interest rates by 0.25%. Here’s what you need to know: Why the Cut? Slowing inflation and signs of a cooling economy prompted the Fed to ease monetary policy, aiming to support sustained growth and ensure price stability. Inflation Progress: Inflation continues to trend downward, nearing the Fed’s 2% target, but policymakers remain cautious about potential headwinds. Economic Signals: Despite a resilient labor market, recent indicators show softening consumer spending and business investment, reinforcing the need for a rate cut. Looking Ahead: The Fed signaled a patient, data-driven approach for 2024, suggesting further cuts could be possible if economic conditions weaken further. This marks a significant shift in policy as the Fed pivots from tightening to easing. Markets rallied on the news, reflecting optimism about the move’s impact on growth.

Big news from the Federal Reserve today! In a widely anticipated move, the Fed cut interest rates by 0.25%. Here’s what you need to know: Why the Cut? Slowing inflation and signs of a cooling economy prompted the Fed to ease monetary policy, aiming to support sustained growth and ensure price stability. Inflation Progress: Inflation continues to trend downward, nearing the Fed’s 2% target, but policymakers remain cautious about potential headwinds. Economic Signals: Despite a resilient labor market, recent indicators show softening consumer spending and business investment, reinforcing the need for a rate cut. Looking Ahead: The Fed signaled a patient, data-driven approach for 2024, suggesting further cuts could be possible if economic conditions weaken further. This marks a significant shift in policy as the Fed pivots from tightening to easing. Markets rallied on the news, reflecting optimism about the move’s impact on growth.

Inflation in the U.S. has dropped to 2.2%, a welcome surprise for many and a key indicator that the Federal Reserve’s strategy is gaining traction. Following the Fed's first interest rate cut since the pandemic, this decline has boosted investor confidence and sparked discussions about further rate cuts in November. As financial markets react with optimism—lower Treasury yields and a slight uptick in stocks—the looming presidential election makes every economic shift pivotal. Both sides will leverage this data to bolster their narratives, but the real challenge for the Fed lies ahead: balancing a robust labor market with price stability. With inflation nearing the Fed’s target of 2%, could we see a more accommodative stance in the coming months? Only time will tell, but one thing's for sure—these developments are critical for the economy and warrant our close attention!

There’s little economic justification for the Fed to cut rates further at this time. Here’s why 📈Growth: The Fed projects 2.0% real GDP growth for 2025, yet nowcasts like GDPNow show growth exceeding 3%, far outpacing expectations. 💼 Employment: The Fed forecasts a 4.4% unemployment rate, but the current rate is just 4.1%, well below concern levels. 🔥 Inflation: While the Fed sees core PCE inflation at 2.6%, the latest data shows 2.8%, slightly above target but not alarming. Given these indicators, rate cuts seem unnecessary. Yet, the Fed appears driven not by need but by want—potentially due to political pressures or concerns about reversing course after the prior 50-basis-point cut. This raises two major concerns: 1️⃣ Credibility at Risk: The Fed’s actions diverge from its stated data-driven approach, risking its long-held reputation for discipline. 2️⃣ Bond Market Confidence: A lenient Fed reaction function could shake trust among bond vigilantes, whose confidence relies on a clear, disciplined policy framework. Comparisons to late 2020/early 2021 are apt. Back then, inflation picked up, the Fed lagged in its response, and speculative bubbles grew in stocks and crypto. But today, we’re seeing this against a backdrop of a resilient economy, with record consumer spending (Black Friday and Cyber Monday broke records) and a manufacturing rebound. So what's the trade? See --> https://lnkd.in/gSFT8HHm

𝗙𝗲𝗱 𝘀𝘁𝗮𝘆𝘀 𝗼𝗻 𝗵𝗼𝗹𝗱, 𝗯𝘂𝘁 𝗣𝗼𝘄𝗲𝗹𝗹 𝗴𝗶𝘃𝗲𝘀 𝘂𝘀 𝘁𝗵𝗲 𝗰𝗹𝗲𝗮𝗿𝗲𝘀𝘁 𝘀𝗶𝗴𝗻 𝗼𝗳 𝗮 𝗿𝗮𝘁𝗲 𝗰𝘂𝘁 𝗶𝗻 𝘁𝗵𝗶𝘀 𝘁𝗶𝗴𝗵𝘁𝗲𝗻𝗶𝗻𝗴 𝗰𝘆𝗰𝗹𝗲. The Fed unanimously decided to keep the federal funds rate unchanged in yesterday’s FOMC decision. However, during his press conference, Powell gave the clearest signal yet of an upcoming rate cut as soon as September. My take is that while Powell emphasized risks to the employment side of the Fed's dual mandate, the Fed believes they are well-positioned to respond to any weakening in the labor market that goes beyond normalization. The Fed believes the risk of a slowdown beyond normalization is low and outweighed by the need for more confidence that inflation is on a sustainable path to 2% before lowering rates. Powell emphasized that in Q2 we saw broader disinflation with goods prices continuing to come down, as well as housing and non-housing services. If this quality of disinflation continues, I believe the Fed will cut in September. Any further weakening in economic data would solidify this expectation. Markets have a Fed put in their pocket. The Fed is not yet worried about a slowdown beyond normalization, but they are paying close attention to it. This provides confidence that the Fed will respond to any significant slowdown, supporting a risk-on sentiment in the markets.

Thornburg PM Jeff Klingelhofer says the Fed’s decision to avoid signaling a September rate cut demonstrates prudent flexibility. Here are his key takeaways from this month's meeting and presser: 1. Fed wisely avoided signaling a September cut for flexibility. 2. Markets wrongly assume a September cut is guaranteed. 3. Two inflation reports before September could change the outlook. 4. Recent rate movements linked to inflation and unemployment trends. 5. Fed should cushion the cycle, not drive it. 6. Powell indicated balanced risks, hinting at a possible cut. 7. Fed sees the economy as stable, cautious about rapid moves. 8. Investors should focus on gradual rate cuts, not the first cut alone.

Thornburg PM Jeff Klingelhofer says the Fed’s decision to avoid signaling a September rate cut demonstrates prudent flexibility. Here are his key takeaways from this month's meeting and presser: 1. Markets wrongly assume a September cut is guaranteed. 2. Two inflation reports before September could change the outlook. 3. Recent rate movements linked to inflation and unemployment trends. 4. Fed should cushion the cycle, not drive it. 5. Powell indicated balanced risks, hinting at a possible cut. 6. Fed sees the economy as stable, cautious about rapid moves. 7. Investors should focus on gradual rate cuts, not the first cut alone.

Thornburg PM Jeff Klingelhofer says the Fed’s decision to avoid signaling a September rate cut demonstrates prudent flexibility. Here are his key takeaways from this month's meeting and presser: 1. Fed wisely avoided signaling a September cut for flexibility. 2. Markets wrongly assume a September cut is guaranteed. 3. Two inflation reports before September could change the outlook. 4. Recent rate movements linked to inflation and unemployment trends. 5. Fed should cushion the cycle, not drive it. 6. Powell indicated balanced risks, hinting at a possible cut. 7. Fed sees the economy as stable, cautious about rapid moves. 8. Investors should focus on gradual rate cuts, not the first cut alone.

The trajectory of inflation in the US today looks strikingly similar to the early 1970s. A recent analysis by Jesper Rangvid examines these fascinating parallels and contrasts. In the early phases of the current inflation surge, the Fed was slow to react, keeping rates at zero even as inflation took off in 2021. This was the opposite of the 1970s, when the Fed raised rates as soon as inflation began rising. However, in the later phase as inflation has peaked and started declining, the Fed has wisely kept rates high this time. The Fed's steadfast policy today, keeping real rates solidly positive, gives hope we can avoid a late-1970s repeat. It shows the Fed might have absorbed the key lesson not to declare victory prematurely. Staying the course is critical to cement progress and credibility. For investors, this bolsters the case that inflation will continue receding toward the 2% target. While risks remain, a late-1970s inflation resurgence looks unlikely - provided the Fed maintains its resolve. However, the Fed will likely need to keep rates higher for longer than in past cycles. Investors should still position for an extended period of positive real rates. Link to Jesper Rangvid's analysis: https://lnkd.in/edZ-TNu7