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No Rate Cut Today, But Will Powell Hammer the Markets

While we know there will be no Fed Funds rate cut today we don’t know what will happen at the press conference which will happen at 1:30 p.m (central). Are markets ready for some ‘I told you so’ from Powell. At each press conference on previous FOMC days Powell has warned of reigniting inflation so now he can thumb his nose at the so called financial reporters at the press conference. We know that there will be no promises of rate cuts–the only question I have is how much of a hawkish tone he will set. We’ll see-no one knows.

This morning markets are eerily quiet–when the DJIA, S&P500 and NASDAQ all are trading with less than a 1/10% movement you know markets are prepping for big news. I would be shocked if interest rates moved more than a couple basis points lower today–but not surprised if it moved higher. I have no illusions great bargains being created anytime soon in the income issue arena–no visible catalyst.

Lots of cash, in particular in the Fidelity Government Cash Reserves (FDRXX) @ 5.02% today–waiting for a more permanent home. That 5.02% certainly removes the urgency to invest quickly–no all bad taking time to ponder moves.

27 thoughts on “No Rate Cut Today, But Will Powell Hammer the Markets”

  1. It’s an election year and the Fed can not tolerate a certain election outcome.

    They will follow the rate on the 2 year down.

    I am still looking for May, June and July cuts. One in December as well. But I will take my lead from the 2 year – which the Fed will influcence by balance sheet gymnatics before they “announce” the first cut.

    1. August,
      I am thinking there will be an Oct. cut as a final effort to influence the election.
      My guess it would be instead of Dec, but may be the “third in the series”.

      1. Hi Private

        There is no Oct meeting, there is September and November. My thinking that the optics of a cut at those meetings is too ugly even for the Fed. Anything is possible as no stone will be left unturned to get the desired outcome at the end of the day.

    2. Do you really believe the Fed are stumping for one party to throw the election their way? Historically they have not worked for the prez choosing to remain a separate entity, with a few exceptions. Wouldn’t they go out of their way to avoid the appearance of partisanship which would mean no major surprises before the election. Unless necessary for unrelated reasons.

      1. Interesting brief article concerning Fed, interest rates, and election years if one is so inclined to read…
        “One theme emerges clearly: whether the Fed was adjusting based on dynamic economic conditions, responding to severe recessions, or following a path already forged, it continued to pursue its dual mandate irrespective of elections. “

  2. The Fed wants to cut rates and it will take some pretty adverse data to change that path. Raising expected inflation and growth but maintaining three rate cuts seems contradictory unless there is a priority to cut rates.

    The other interesting issue seems to be that it is likely that QT is going to slow or stop before the Fed’s balance sheet sheds Its recent gains. Will that impair the Fed ability to ease when needed?

    1. I think Powell & Co. want to hold the cuts until closer to the election to help the current administration. He is supposed to be non-partisan, but I have to believe he would prefer working with Biden than Trump (and he has dealt with both).

      (I don’t think that is political, but if it is, please disregard or call the bailiff).

  3. what do folks think of Boeing bond 6.87500% 03/15/2039 trading at $105 for YTM ~6.35%
    CUSIP : 097023AX3

    1. 6.35% for 15 years. It is a duopoly, and hard to see a bankruptcy, but not a certainty. If there was some horrible crash with provable negligence it could happen. Not liquidation bankruptcy but a debt restructuring is possible. I think you can probably do better for a shorter maturity. IMHO

        1. GM was too big to crash too & it did in 2009…POTUS brought it back, but there were many retail losers…

          1. Sometimes the ratings agencies haven’t updated their ratings on a company’s bonds. Will happen after the horse gets out of the barn. RILY, NYCB, and others had their ratings downgraded after a event. As mentioned, something else happens with Boeing and that rating is going to change. You should take ratings as just a guide

      1. There are the obvious issues with BA that are in the news. A lot of this is overblown, but a lot of it isn’t. Engine fires right now make the news, but they happen all the time. There was an issue with the flight stability of an aircraft which evidently had to do with a flight attendant (who knows what was going on in the cockpit…)

        That said – the issues with quality control and manufacturing processes which cause door plugs to blow off in midflight are major and not overblown. Either is the FAA legal action.

        They are going to have to buy SPR in my opinion. That has several issues associated with it. Not least of which is the fact that SPR has legacy contracts with Airbus and to a lesser extent with Bell Flight (division of Textron) for the V 280 platform. V 280 is certainly less of an issue as the EU is not involved. If BA has to exit these contracts (likely) it will be on unfavorable terms. Then there is the cost of integrating and turning around SPR which will be a blackhole – SPR is a mess.

        Speculation is when they do buy SPR it is likely to be a cash (rather than stock swap) deal. I don’t see how that helps existing BA bondholders.

        Issues at Boeing Commerical Aircraft are well publicised, but BA’s defense business has it own issues in terms of performance on fixed price contracts. There are certainly positives to BA Defense, but it would not shock me to see BA Defense spun off or carved out over the next 15 year period. Maybe that helps stock holders (maybe) but I don’t see how it can possibly benefit bondholders (if it happens) given issues at commerical. I am not predicting a spin of BA defense, but it is a possible risk factor for bondholders if you look at a 15 year timeframe IMO.

        I don’t see bond holders benefitting from any of this in terms of downgrade risk. Fitch shows BA at a BBB-. Can this downgrade into a BB? I just think there is more downside than upside risk to the credit rating from here.

        A 6.35% YTM looks good – but you can buy Agency MBS bonds with a 6% coupon near par. I was a buyer of 6% FreddieMAC 6% MBS bonds at par in October and would buy them again below par. Not a recommenation, but it is a comparison point. On the other side of the spectrum Eagle Point Credit 8% 5 year term preferred. This is term preferred stock in a CLO equity CEF. Buying these under par might be better from a risk/reward. Certainly not a recommendation, but it is a comparison point. I own other Eagle Piont Credit (ECCC) term preferred issues and am happy with them. Just think you are getting paid not to take credit risk with Agencies and you are getting paid to take credit risk with CLO equity.

        But then again I also like Bitcoin.

        1. August – I’m with you. I’m buying MTBA for the new issue MBS and then ECCC (great YTM, and if rates crater chance for double digit YTC) and EICB (more current yield, lower YTM, shorter duration, and safer issuer). Using OCCIN as fancy cash… 5.75% current yield, monthly, beats cash, and YTM near 8.5% that I’ll take as LT cap gain on pull to par. That makes a decent barbell approach.

  4. Energy ~ Brent up 18% since Dec 12 low; I can imagine consumers paying more for everything if this trend continues into the summer driving season regardless of JP’s yak today.

  5. RITHM Capital, a top-tier mREIT, began trading today on its 8.00% bond maturing 2029. It has a CUSIP, 64828TAB8. I called Fidelity to ask if it might trade as a baby bond with a temporary symbol, and they said it’s being offered to institutions and we peons will not be able to buy it. Is that true? Any of you looked into it? It’s a very good deal for somebody…. Thanks.

  6. I’ve just bought some RWAYL at $24.60. Super Deal! YTM = 8.2%
    Runway Growth Finance Corp. 7.50% Notes Due 07/28/2027

    1. Not such a good deal though. It was trading at $23.54 a few months ago and has been above $24 since the start of the year.

      1. Hugg, I can’t help looking backwards myself at stocks I’m interested in. Hoping to catch them if they hit those lows again. Doesn’t mean they will. Have to ask yourself what has changed since then. Personally I noticed in the winter people are gloomy and in the spring people are more upbeat. I truly believe that the seasons affect the market

      2. actually you cannot find anything better with a short duration.
        “few months ago” is a different story.

  7. I bought quit a bit Farm Agency Bank 2039 Bond -6.04% Callable in 1 year 03/21/2025 ( State Tax free ) available on Fidelity cusip 3133EP5Y7 . Treat it as 1 year CD with 5.0%-5.28% real return after federal tax

  8. I think Powell will be middle of the road. However…however, that doesn’t mean that markets won’t ERUPT. Optimist that I am I’m looking for a slaughter of the lambs and any other beasts of the fields that might be out grazing.

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