Control Panel: Let's tell the FOMC what to do

Investment Analysis Clubs Macro Economic Trends and Risks
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The Wall Street Journal’s Nick Timiraos is said to be a “Fed whisperer” because he often analyzes and predicts FOMC actions. That’s a far cry from Greg Ip’s hubristic harangue telling the FOMC what to do.

https://www.wsj.com/economy/central-banking/interest-rates-are-too-high-the-fed-should-cut-by-a-half-point-e7855ea8?mod=hp_lead_pos3

Interest Rates Are Too High. The Fed Should Cut by a Half Point.

With rates so far from ‘neutral’ and the labor market cooling, it’s better to start big

By Greg Ip, The Wall Street Journal, Sept. 15, 2024

The Federal Reserve’s interest-rate decision this week looks more difficult than it should be. The real question isn’t how much to cut, but where rates ought to be. The answer is much lower. That argues for a half-point cut…

Fed officials think the “neutral” real rate, one that pushes employment and inflation neither up or down, is 0.5% to 1.5%—at least 1.75 percentage points from here. …

Inflation-indexed bonds and derivatives now project CPI inflation at just 1.8% in the coming year and an average of 2.2% in the following five years, according to the Intercontinental Exchange…

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The markets have predicted a fed funds cut in September 2024 for many months. The options market is evenly split between 25 and 50 basis points.

The stock market is rising cautiously. The CAPE is rising to a new bubble high.

Bond yields are falling across the entire Treasury yield curve. Junk bond yields are also falling since an easing environment will impact new and refinancing debt. Financial stress is low.

The Fear & Greed Index is neutral. The trade is neutral, neither risk-on nor risk-off.

USD is near the bottom of its channel which began in January 2023. Gold and silver are popping and gold is at a new record.

The price of oil continues to fall as it has for 6 months. Natgas may have bottomed.

Manufacturing is slowing but the much larger service economy continues to grow. Economic activity in the services sector expanded for the second consecutive month in August, say the nation’s purchasing and supply executives in the latest Services ISM® Report On Business ®. The Services PMI® registered 51.5 percent, indicating sector expansion in six of eight months in 2024. This month’s reading indicates sector expansion for the 48th time in 51 months.

The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2024 was 2.5 percent on September 9, up from 2.1 percent on September 4. That is a respectable, sustainable growth rate which is close to the “Blue Chip consensus.”

The Cleveland Fed’s Inflation Nowcasting predicts the 3Q24 Quarterly annualized percent change to be at or below the Fed’s 2% target.

The METAR for next week is sunny. Whether the Fed cuts by 25 or 50 basis points the markets are likely to respond favorably. But these cuts are largely priced into the market already so any moves are likely to be muted.

Wendy

https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/services/august/

https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

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I can not speak to the stock market because I can not predict the chip market and by extension chip demand until the ISM’s PMI starts to rise.

I agree with 50 bps. I think that will have an impact on the IRR of corporate planners. But 25 bps would not. 50 bps and the market will rise. I think the PMI would lag but soon would rise.

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High interest rates are bad for stocks. The Fed Should Cut Cut Cut.

The Captain

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The Fed does not have a mandate to support stocks.

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The Fed’s mandate, Lender of Last Resort, is to protect the Banking Cartel that created and owns the Fed. That does not change the reality that lower rates benefit stocks.

The Captain

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The FED is not going to cut cut cut.

This will be limited. The FED mandate for price stability…around 2% inflation either means higher rates or higher taxes on the top bracket. The top bracket is not going to see higher taxes to the extremes of the 1950s in the US. Interest rates will remain relative high by historic norms.

We also do not want to load up the corporates with 2% long term US bonds like we did in the 50s and 60s. That was ruinous. A huge devaluing of the USD followed.

I have not tried to suss out the bottom for the FF rate.

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@captainccs: “High interest rates are bad for stocks. The Fed Should Cut Cut Cut.”

Obviously, the Wall Street Journal agrees with you and they are talking their book.

Since you aren’t American you might not be aware that the Federal Reserve’s mandate is:

  1. Act as a lender of last resort in a crisis.
  2. Maintain maximum employment consistent with
  3. Low inflation.

The Fed’s mandate does NOT include protecting prices in the asset markets.

The Fed will NOT cut cut cut if they think lower interest rates will cause higher inflation. They have expressed a determination to return to a neutral fed funds rate which will neither stimulate nor slow the economy. It’s not clear what this neutral rate is but it is obviously not the negative real rate the Fed maintained during the pre-Covid decade.
Wendy

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A non American can read The Creature from Jekyll Island: A Second Look at the Federal Reserve, learn about banking and economics, political chicanery, and how to disguise reality with mandates.

There is more to the world than America.

The Captain

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The problem is wild conjecture. Free message boards.

But people are called on nonsense.

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Someone recommend that book a while back so I went to Amazon to check it out. I couldn’t help but notice some of the author’s other books, one of which was called “A World Without Cancer.”

In it, he describes a conspiracy between the FDA, medical establishment, Big Pharma, etc. to suppress the cancer curing properties of Vitamin B17. One slight flaw in his argument is that there is no such thing as vitamin B17. I concluded he wasn’t a credible commentator and passed on the The Creature from Jekyll Island.

That said, the Fed gets lots of criticism on this board and elsewhere, but not so long ago, there seemed to be a general belief that the US was heading into recession in 2024.

Yet here we are with low inflation and low unemployment, as per dual mandate.

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Longer than that: Wendy alone has been advising us of the potential for a number of years. I agree that it is very probable that we will see a recession sometime in the future. Just when that is, is not so certain. It could be later this year, or it could be next year. If I had to guess, it will be within the next decade or two.

Pete

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correct, at least that long

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Why would someone be so stupid as to write about something that does not exist? Vitamin B tops out at 12! People being so defensive about the Fed, I better do some fact checking, it might be a typo. A 7 and a 2 are quite similar, maybe a 7 type was misplaced in the 2 box.

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I guess not. Google to the rescue…

Laetrile (amygdalin or vitamin B17)

What laetrile is

Laetrile is a partly man-made (synthetic) form of the natural substance amygdalin. Amygdalin is a plant substance found in raw nuts, bitter almonds, as well as apricot and cherry seeds. Plants like lima beans, clover and sorghum also contain amygdalin.

Some people call laetrile vitamin B17, although it isn’t a vitamin.

Why people with cancer use it

Laetrile has been used as an anti cancer agent since the 1800’s. It is used either on its own or as part of a programme. This might include following a particular diet, high dose vitamin supplements and pancreatic enzymes.

When laetrile is processed by the body, it changes to cyanide. Cyanide is a type of poison which is thought to kill cancer cells. There is not enough reliable scientific evidence to say laetrile can treat cancer.

People who use laetrile believe it might:

  • improve their health, energy levels and wellbeing
  • detoxify and cleanse the body
  • help them to live longer

Laetrile (amygdalin or vitamin B17) | Complementary and alternative therapy | Cancer Research UK.

Something called vitamin B17 does exist. Why would by G. Edward Griffin write about it? I’m not about to buy the book.

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We all have our biases and I don’t happen to like bankers. The story as told by Edward Griffin sounds like a credible conspiracy. Banks used to go broke a dime a dozen. The big Wall St. bankers got together to protect their turf. They got Congress to pass the law that created the Fed but it needed some camouflage to make it seem like a good thing for the Republic, not just for bankers. A few irrelevant ‘mandates’ were attached to make it palatable. Put in modern terms, the Fed is one of the largest regulator captures in America.

What is regulatory capture usually caused by?

According to George Stigler, regulatory capture is caused by cultural capture, where the industry and the regulators form a friendship. Also, members of the regulatory bodies hailing from the industries can also cause regulatory capture.

Regulatory Capture Definition, Criticisms & Examples | Study.com.

The Captain

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If you are a fan of Sherlock Holmes you would know about amygdalin, bitter almonds, any cyanide poisoning. Arthur Conan Doyle was a medical doctor.

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He wrote it to make money. Does not matter what he said. He wants the money.

Snake oil. No shame. Poison. No prison unfortunately. Does not matter what he said.