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Global Rate Cuts–Can the Fed Be Far Behind?

Yesterday the Canadian central bank cut interest rates by 1/4% and today the European Central Bank (ECB) cut rates by the same amounts. The inflation rates in these regions pretty much mirror the inflation rate (as measured by the PCE) in the U.S. Does this mean that the Fed will be far behind? Of course who knows–as always we need to see more data and in particular more inflation news. It would appear that employment is softening very modestly–but this number could reverse in a heart beat. Various economic indicators have been signaling for months–some years, that the economy is softening, but until those indicators feed into the employment numbers there may be little motivation to cut interest rates.

I have very mixed feelings about rate cuts since it has been super after years of earning zero on cash type investments the over 5% CDs have been a spectacular gift to many of us conservative investors. On the other hand I know that we will go into the recession at some point in time and lower rates will be used to fight the slowdown.

I think we will see the rate cut come in September–there will be lots of data between now and that point in time and we need to see inflation tick down by .1 or .2 in that time. Alternatively we need to see unemployment go over 4%–say 4.3% which would provide cover for a Fed cut as they ‘try to get ahead’ of the potential recession.

Jobless claims which were just released came in above forecast–not a dramatic move (229,000 versus 220,000 forecast), but we don’t need dramatic moves–just consistently softening. The 10 year treasury is around 4.29% now–no real reaction to rate cuts globally.

As always no one knows what will happen–no one! We always need more data–but I am a buyer of securities and should have some buys today.

17 thoughts on “Global Rate Cuts–Can the Fed Be Far Behind?”

  1. Elizabeth Warren apparently called on Powell to “get with the program” and additionally stated that “It’s time for the Fed to cut interest rates.”

    “As Europe lower rates even more, [Fed Chair] Jerome Powell needs to get with the program,” Warren wrote in an X post. “It’s time for the Fed to cut interest rates.”

  2. Fed Mandates –

    Fight Inflation
    Keep Economy at Full Employment
    Keep our Jobs

    Guess which one of these three is compatible with a 2024 set of US rate cuts.
    Also guess which is most important to the Fed officials….

    I am still looking for 3 (down from 4) totally unnecessary and inlationary cuts to the Funds Rate in 2024. Followed quickly by 5-6 hikes in 2025.

    We all might see some capital gains… but those will be lost due to the subsequent increase in inflation. IMO. I plan to sell the second Fed Cut.

    Don’t believe it – keep an eye on the commodities markets with special focus on Gold, Silver, Copper, WTI, Bitcoin, Cocoa, Orange Juice etc…

    1. August – don’t forget Fed’s desire (mandate?) to keep the current president for 4 more years. I personally expect at least two cuts before the election to help his ability to claim that the economy is doing better.

      Sorry if this sounds political, but it is just my observation that the fed would rather work with Joe than Donald.

      Personally, I pray for a meteor strike during the upcoming debate that will take out both of them (and Kamala) so we can pick someone (anyone?) better than the current choices. (Oh, and welcome to our NSA and Secret Service friends who just joined this conversation because of the last sentence. Its not a threat, guys. seriously. I am not proposing any action against anybody – Just a hope for something better)

      1. I think the Fed is clearly political. To think otherwise is just denying reality.
        Yes the Fed has a particular outcome in mind (which will preserve their jobs) and another outcome in mind (which will get them fired).

        So yes they will let inflation run hot (and pretty much do anything else) for the desired outcome.

        1. Another view…..
          The Fed HAS to stay out of impacting the upcoming election.
          So, as long as there is no data driven justification demanding otherwise, I expect them to do nothing through the end of the year.

          After that, Katy bar the door.

          Battening my hatches and donning my foul weather gear
          As in
          I am pretty well finished with reducing my exposure to market valuation (stocks and prefs) from 50% to 35% and increasing commensurately my exposure to A+ and up CD’s/Bonds maturing before 2028.

          1. Not to argue with you Westie, but the fed has to *appear* to not be impacting the election. They won’t come out and say it, but i am confident they will do something (and mask it from looking too partisan).

            As far as “data driven”? they have so much data pointing every which way that I am sure any action they take will be backed by some data. Will it be aligned with reality? only by accident….

    2. August:

      Don’t forget another one of the Fed’s mandates…..support higher stock prices.

      They will likely be cutting rates with the stock market indices in the US and elsewhere across the globe at all-time highs and at very extended valuation levels.

      Truly taking a page out of the Alan Greenspan 1999 playbook!

      Of course these Fed clowns should be taking away the punch bowl when markets are all lathered up and bubblicious…but instead are about to spike it hard.

  3. LEI)…Over the six-month period between October 2023 and April 2024, the LEI contracted by 1.9 percent—a smaller decrease than its 3.5 percent decline over the previous six months.

    CEI) was up 0.9 percent over the six-month period ending April 2024

    Not too hot not too cold..

      1. @Nimzo:
        The Leading Economic Index (LEI) provides an early indication of significant turning points in the business cycle and where the economy is heading in the near term.
        The Coincident Economic Index (CEI) provides an indication of the current state of the economy.

  4. The monthly jobs report is based on a voluntary system of compliance while the quarterly poll is mandatory and much more reliable. In April 24, the BLS corrected the jobs data for private employers for the third quarter of ‘23 from around plus 500k to a negative 200k. The article from Bloomberg below says that a recent quarterly dataset suggests a downward correction of 720, 000 jobs for all of 2023 or 60,000 per month.

    I don’t know if this update for 2023 uses the same data as the April 24 correction. If so, it suggests that there is no correction for the fourth quarter, I.e. it all happened in the third quarter. But this week’s annual correction comes too soon to be in sync with the earlier correction.

    I am concerned that the strength of the labor market is overstated. Bernanke wrote that it took a year to find out in 2009 that the jobs market in 2008 had soured. Yuh

    US Payroll Gains Not as Robust as Reported, BLS Data Suggest

  5. Energy Transfer (NYSE: ET) has filed mixed shelf of:
    Common Units Representing Limited Partner Interests
    Preferred Units Representing Limited Partner Interests
    Debt Securities

  6. Rates have an indirect effect on the economy. Expanding the money supply is the main problem. That’s why these rate hikes aren’t working it’s like running the heater and air conditioner at the same time. Inefficient way to set the temperature.

    1. You are correct.
      Heating in the summer and cooling in the winter would be more efficient, however, self defeating.
      Inefficient or efficient, either way we are in trouble.

    2. 100% correct Martin. Add to that BRICS coming for our lunch amid downright terrible governance & leadership by our elected officials and CEO’s.

      Why my portfolio is nearly all floating rate. I am sure they will cut, but just like the 70’s, they will see those cuts with higher raises until structural problems are addressed. We aren’t going back to pre-covid rates, the world changed.

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