This is an excerpt from our most recent Economic Outlook report. To access the full PDF, please click here.
(1) Here is a list of U.S. macro fundamentals, ones that suggest the FOMC should not be cutting their policy rates—
- Real Gross Output in Q1: +2.5%
- GDPNow in Q2: +2.5%
- JP Morgan global manufacturing PMI, at 50.9 in June, output has increased each of past 6 months.
- Core CPI at +3.3%
- Year-ahead inflation expectations: +2.9%
- Avg. monthly nonfarm payrolls, over the last 12 months: +220K
- Job Openings in May: 8.1 million
- Stock indices at record highs, S&P500 at 5,660
- Fixed income style returns all YTD positive, other than long-duration U.S. Treasuries
(2) Here is the list of U.S. macro fundamentals, that suggest the FOMC should be cutting their policy rate shortly—
Lagging household unemployment rate: 4.1% in June, up from 3.6 %to 3.8%.
One solitary indicator.
The FOMC is data-dependent, folks!
(3) What Fed Chair Powell officially shared, in Congressional testimony on July 10th—
“Recent indicators suggest that the U.S. economy continues to expand at a solid pace.”
“Gross domestic product growth appears to have moderated in the first half of this year following impressive strength in the second half of last year.”
“Private domestic demand remains robust, however, with slower but still-solid increases in consumer spending. We have also seen moderate growth in capital spending and a pickup in residential investment so far this year.”
“Improving supply conditions have supported resilient demand and the strong performance of the U.S. economy over the past year.”
“Inflation has eased notably over the past couple of years but remains above the Committee's longer-run goal of 2 percent.”
“Total personal consumption expenditures (PCE) prices rose 2.6% over the 12 months ending in May. Core PCE prices, which exclude the volatile food and energy categories, also increased 2.6%.”
“The Committee has stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent.”
“Incoming data for the first quarter of this year did not support such greater confidence.”
“The most recent inflation readings, however, have shown some modest further progress…”
(4) This entire aggressive Fed Funds trader rate-cutting call (in mid-July 2024) could be based solely -- on that final bolded Fed Chair Powell line.
Just keep that in mind.
Do we really get seven 25 basis point Fed Funds rate cuts -- by Sept. 2025?
It is possible.
But how possible?
In turn, I do not agree with Goldman Sachs’ Jan Hatzuis.
July is too soon for a Fed Funds rate cut.
Image: Bigstock
To Cut or Not to Cut - That Is the Question
This is an excerpt from our most recent Economic Outlook report. To access the full PDF, please click here.
(1) Here is a list of U.S. macro fundamentals, ones that suggest the FOMC should not be cutting their policy rates—
(2) Here is the list of U.S. macro fundamentals, that suggest the FOMC should be cutting their policy rate shortly—
Lagging household unemployment rate: 4.1% in June, up from 3.6 %to 3.8%.
One solitary indicator.
The FOMC is data-dependent, folks!
(3) What Fed Chair Powell officially shared, in Congressional testimony on July 10th—
“Recent indicators suggest that the U.S. economy continues to expand at a solid pace.”
“Gross domestic product growth appears to have moderated in the first half of this year following impressive strength in the second half of last year.”
“Private domestic demand remains robust, however, with slower but still-solid increases in consumer spending. We have also seen moderate growth in capital spending and a pickup in residential investment so far this year.”
“Improving supply conditions have supported resilient demand and the strong performance of the U.S. economy over the past year.”
“Inflation has eased notably over the past couple of years but remains above the Committee's longer-run goal of 2 percent.”
“Total personal consumption expenditures (PCE) prices rose 2.6% over the 12 months ending in May. Core PCE prices, which exclude the volatile food and energy categories, also increased 2.6%.”
“The Committee has stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent.”
“Incoming data for the first quarter of this year did not support such greater confidence.”
“The most recent inflation readings, however, have shown some modest further progress…”
(4) This entire aggressive Fed Funds trader rate-cutting call (in mid-July 2024) could be based solely -- on that final bolded Fed Chair Powell line.
Just keep that in mind.
Do we really get seven 25 basis point Fed Funds rate cuts -- by Sept. 2025?
It is possible.
But how possible?
In turn, I do not agree with Goldman Sachs’ Jan Hatzuis.
July is too soon for a Fed Funds rate cut.