Fed funds cut with charts

Investment Analysis Clubs Macro Economic Trends and Risks
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The Wells Fargo economists just published a good analysis of today’s fed funds cut with good charts.

Inflation is still too high and rising. The unemployment rate is low but slowly rising.

The dot plot and forecast show a gradual reduction of the fed funds rate rather than the sudden extreme cuts from previous cycles – which is what President Trump wants.

I don’t see any reason to cut the fed funds rate at all. The Federal Reserve has said that they want a “neutral” rate which neither slows nor stimulates the economy. There’s no sign that the current fed funds rate is slowing the economy.

https://www.wsj.com/opinion/donald-trump-federal-reserve-rate-cut-jerome-powell-stephen-miran-ebaae514?mod=hp_opin_pos_1

It’s Trump’s Federal Reserve Now

The President gets his interest-rate cut—and all that comes with it.

By The Editorial Board, The Wall Street Journal, 9/17/2025

…

In their Summary of Economic Projections (SEP) released after this week’s meeting, Fed officials anticipate two more 25-point rate cuts this year and another in 2026. Yet the same SEP projections concede that inflation is proving more persistent than anticipated….

Chairman Jerome Powell and colleagues are shifting their main policy focus from inflation to the slowing labor market. Mr. Powell in his press conference described this week’s decision as a “risk-management cut” and emphasized evidence of softness in job creation.

But he struggled to articulate how monetary policy might make a difference. Neither of the negatives he mentioned—tariffs and Mr. Trump’s immigration crackdown—can be offset by lower interest rates. Otherwise, “it’s not a bad economy,” he allowed. Booming stock valuations and investor enthusiasm for low-quality debt, among other symptoms, suggest financial conditions aren’t especially tight as it is…

Coupled with those inflation projections, the message is that the Fed will tolerate higher inflation for longer to take pre-emptive action to shore up an economy that may or may not need the help…. [end quote]

Financial conditions aren’t just “not especially tight as it is” – they are very loose. The Fed is feeding the markets with the crack cocaine of cheap money that traders crave and lead to inflation in asset prices which puts housing out of reach for ordinary working people.

The Fed’s intention is to cut rates which will be inflationary.

Wendy

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Asset prices were inflating a lot even before today’s rate cut.

Asset prices deflated some after the last rate hikes, but then the markets forgot about higher rates and just re-inflated assets.

Certainly lower rates add to asset inflation, but we’ve got plenty of asset inflation already!

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Which is clearly not how the Fed sees it. For example, earlier this month from the Cleveland Fed…

The neutral interest rate (r-star) is an important input in monetary policy discussions and is commonly used to assess the stance of monetary policy. This Economic Commentary presents estimates of the neutral interest rate from a recently developed model and provides a high-level description of this new model. With data through 2025:Q2, the model estimates the implied (medium-run) nominal neutral interest rate to be 3.7 percent, with a 68 percent coverage band ranging from 2.9 percent to 4.5 percent. Given that the effective nominal federal funds rate is currently in the range of 4.25 percent to 4.5 percent, this model estimates with a high level of certainty (77 percent probability) that the policy stance is in restrictive territory.

DB2

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So….

I read the WFC summary twice.

I get that inflation is both above target and rising.

I get that the Fed lowered rates by a quarter point anyway because of a precipitous drop in the labor market.

I get that the Fed will probably remain in a loosening trend given their own statements combined with the likely predisposition of future appointees.

I get that our fiscal policies are almost guaranteed to stimulate growth with deficit spending flowing predominantly into capital markets.

Sound like stocks and tips are still the way to go.

Except: tips are inflation adjusted based on upon cpi-u numbers calculated by the Bls.

BLS was led by McEntarfer (sp?) until she reported numbers that were unacceptable to Big Brother. Can I trust the BLS numbers going forward?

And how much more expensive can my stocks get?

I still feel like Vizzini drinking the poison in Princess Bride.

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“The market can stay irrational longer than you can stay solvent!”

Hawkwin

Has the pedal pushed to the floor, for now.

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Ironically, if Trump wanted lower mortgage interest rates, higher taxes and a balanced federal budget in the United States would likely lower long-term interest rates, including those on 30-year Treasury notes.

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As the economy implodes we will get deflation.

Welcome to the implosion. Next stop the devil’s den.

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Bingo!

“Watch what I do, not what I say.”

The actions show the true priorities.

Wendy

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A good summary. I put it here because it discusses the politicization of the Bls, which, among other things, used to collect the facts upon which our inflated statistics were based, upon which tips depend:

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To clarify, I am guessing that the annual report on consumer expenditures was not released because the inflation numbers were unacceptably high in the opinion of those who previously fired Erika McEntarfer because of dismal employment figures. We may be looking at high and worsening inflation plus tips that are based on corrupted numbers.

Be careful out there.

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