Tag: Federal Reserve

The 2% Fed Neutral Rate target Is a myth

Post author By Fountainhead
Post date 04/08/2024
No Comments on The 2% Fed Neutral Rate target Is a myth

The 2% Fed target is a myth and highly unlikely to be achieved. Historical CPI has been closer to 3%, and given the move away from globalization, and China decoupling in the past 3-4 years, that era of persistent disinflation is likely to be over. You saw Japan’s move.

That said – At least, I believe that beyond a certain point Fed induced higher interest rates will not name inflation, a lot of US inflation is fiscal, not monetary, the Feds know that and will cut for sure as insurance – nobody wants to derail the economy. I still think the three cuts of 25% each in 2024 are achievable. But to your point, yes, I don’t think we’ll go below a 3.5% treasury for a long, long time. I agree with energy stocks doing better in 2024, they will take up more space in the index.

Tags Central Banking, Economic Myths, Fed Rate Hike, Federal Reserve, financial markets, Inflation Target, Interest rates, Monetary Policy, Neutral Rate, US Economy

Market Outlook

Fed’s Preferred Inflation Gauge Eases in February, Matching Expectations

Post author By Fountainhead
Post date 03/29/2024
1 Comment on Fed’s Preferred Inflation Gauge Eases in February, Matching Expectations

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Fed’s preferred inflation gauge subsides, in line with consensus, in February

Core PCE Price Index, which excludes food and energy, rose 0.3% M/M in February vs. +0.3% consensus and 0.5% prior (revised from +0.4%).

On a year-over-year basis, core PCE increased 2.8% Y/Y, compared with the +2.8% consensus and +2.9% prior (revised from 2.8%).

Including food and energy prices, the PCE Price Index grew 0.3% M/M, less than the +0.4% expected and slowing from +0.4% in January (revised from +0.3%).

Prices for goods rose by 0.5%, bolstered by energy prices, and prices for services rose 0.3%. Food prices edged up 0.1%, while energy prices jumped 2.3% during the month.

2.5% Y/Y vs. +2.5% expected and +2.4% prior.

Personal income increased less than expected, up 0.3% M/M vs. +0.4% expected and +1.0% prior, the U.S. Commerce Department said on Friday.

Personal outlays climbed 0.8% M/M, exceeding the +0.5% expected and accelerating from +0.2% in January.

Real disposable income, which is adjusted for inflation, declined 0.1% M/M in February, while real personal consumption expenditures increased 0.4%.

Tags Core PCE Price Index, economic data, Federal Reserve, Inflation, inflation trends, Market Analysis, Monetary Policy, Personal Consumption, Personal Income, U.S. economy

Market Outlook

February Jobs Report: Strong Gains Amid Mixed Signals

Post author By Fountainhead
Post date 03/08/2024
No Comments on February Jobs Report: Strong Gains Amid Mixed Signals

February Jobs Report

Net job gains 275K, higher than the 200K expected.

Hourly wage gains 0.1%, lower than 0.2% expected.

The two-month payroll revision, though, shows a 167,000 loss

The Unemployment rate rose to 3.9%

The 10-year treasury yield, which started at 4.09 is at 4.05

Yesterday, Powell indicated – Fed ‘not far’ from confidence to cut rates

Tags Economic Analysis, Employment Data, February Jobs Report, Federal Reserve, Job Gains, Labor Market, Treasury Yields, Unemployment Rate, Wage Growth

Market Outlook

The Anomaly of Interest Rate Movements: Are Markets Disregarding the Fed?

Post author By Fountainhead
Post date 02/01/2024
No Comments on The Anomaly of Interest Rate Movements: Are Markets Disregarding the Fed?

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The anomaly of interest rate movements

Are markets not believing the Fed?
The 10 year treasury dropped from a high of 4.195 on 1/25 to 3.942 today, 01/31 – the day the Feds and Chair Powell was clearly signaling no chances of a rate cut at the March Fed meeting.
Intuitively the yields should have gone up – is there something else at play.
I believe Yellen’s dovish nod on 1/29 was the main catalyst for the drop in rates and clearly that seems to be overriding Chair Powell’s comments after the FOMC meeting.

Simply, if the government decides it needs to borrow more, it doesn’t get to borrow at cheap rates; the private sector will naturally charge more, which means interest rates go up. Now if Powell’s boss signals that borrowing will be a) less than anticipated this quarter b) borrowing intervals and amounts will be regularly spaced out, it’s a clear dovish signal that the government doesn’t want interest rates going up in an election year.

https://heisenbergreport.com/2024/01/31/treasury-refunding-event-risk-clears-without-drama/

Tags 10-Year Treasury, Bond Market, Economic Policy, Election Year, Federal Reserve, FOMC, Inflation, Interest rates, Market Analysis, Powell, Rate Cuts, Treasury Yields, Yellen

Market Outlook

Fed Rate Cut Unlikely in March: Powell Stresses Patience Amid Inflation Concerns

Post author By Fountainhead
Post date 01/31/2024
No Comments on Fed Rate Cut Unlikely in March: Powell Stresses Patience Amid Inflation Concerns

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Fed rate cut not likely in March

Inflation has eased from its highs without a significant increase in unemployment— “that is very good news,” Federal Reserve Chair Jerome Powell said Wednesday after the central bank kept its policy rate unchanged for the fourth straight meeting. But he followed that up with inflation still remains above the Fed’s 2% goal. “We need more evidence to confirm what we think we’re seeing,” Powell said.

It will likely be appropriate to dial back the Fed’s policy rate at some point this year, he said.

Powell repeats that the Fed will move “carefully” in considering when to cut rates. He doesn’t think that the FOMC is likely to cut at the March meeting.

While he sees some risk that inflation reaccelerates, “the greater risk is that inflation will stabilize at a rate over 2%.”

He declined to say the economy has achieved a soft landing. “We’re not declaring victory at this point. We have a ways to go.”

“There was no proposal to cut rates,” Powell said. Some members did discuss their rate path. Also, he said there was a broad range of views.

“If we saw an unexpected weakening in the labor market, that would weigh on cutting sooner.”