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Prices Decline Raising The Odds Of A Rate Cut
The Consumer Price Index (CPI) fell 0.1% last month, following 0.0% the prior month and expectations for a 0.1% increase. Core prices rose 0.1%, a tenth below last month’s reading and the consensus forecast. Year-over-year inflation is down to 3.0%. The better-than-expected inflation data further affirms the disinflation trend may be back on track. The […]
Jul 12, 2024
QT Today: QE Tomorrow
The Fed’s balance sheet peaked at $9 billion in April 2022. Today, after two years of Quantitative Tightening (QT), it has fallen to $7.2 trillion. When the Fed embarked on QT, its goal was to “normalize” its balance sheet. At the time, the St. Louis Fed claimed the purpose of QT was: “This policy, termed […]
Jul 11, 2024
Chair Powell Testifies To Congress
Fed Chair Jerome Powell testified to Congress yesterday and updated them with the Fed’s latest views on the economy, inflation, and monetary policy. The Fed has kept rates at current levels in part because the labor market was tight. Chair Powell’s concern was that higher wages due to a shortage of workers would feed inflation. […]
Jul 10, 2024
The Market Is Very Extended But It Can Stay That Way
A reader asked us how concerned we are about the market’s extension from crucial moving averages. The short answer is we are. But that doesn’t mean we are moving our equity holdings to cash. We continue to hold our equity positions for two reasons but we remain vigilant. First, the S&P 500 is doing great, […]
Jul 9, 2024
July 31 Is Back On The Markets Calendar With Fridays Jobs Report
A year ago, the Fed Funds futures market thought the Fed would have cut rates two to three times before the July 31, 2024 FOMC meeting. Two weeks ago, the odds of a rate cut at the July 31 meeting were near zero. Furthermore, the market was only pricing in one cut for the remainder […]
Jul 8, 2024
R Star: A Culprit Behind Higher Interest Rates
As we shared on Monday, The Fed Funds Rate Is Too High. The biggest reason is the Fed fears another round of inflation. Therefore, they try to ensure it doesn’t happen via tight money policy. Second, federal deficits have been larger than average, causing a jump in Treasury debt issuance. This is primarily the function […]
Jul 5, 2024
The Economy Is Normalizing – Whats Next?
Tuesday’s JOLTs report is one of many data points showing that the labor market is near or back to the prevailing conditions before the pandemic. It’s not just JOLTs and the labor market normalizing; most other economic indicators show the economy is finally normalizing at pre-pandemic levels. Yesterday’s Commentary argued that while the unemployment and […]
Jul 3, 2024
The Fed Funds Rate Is Too High
Let’s step back and ignore the last four years in which the economy cratered with the onset of the pandemic and then boomed on massive monetary and fiscal stimulus. Let’s also try to ignore the peak 6% core PCE inflation rate in 2022 and the historically low 3.4% unemployment rate in 2023. What if, in […]
Jul 2, 2024
Supercore PCE Is The Weakest Since August
Jerome Powell and his Fed colleagues breathed a sigh of relief Friday morning as the PCE inflation report was weaker than expected. The headline PCE price index was +0.0% versus expectations of a 0.1% increase and a previous monthly change of +0.3%. The Core PCE was +0.1%, also a tenth below expectations. Recent inflation data […]
Jul 1, 2024
Cognitive Dissonance Is On Full Display
The recent Conference Board Consumer Confidence survey data show a state of cognitive dissonance among U.S. citizens. Cognitive dissonance occurs when a person believes in two contradictory things simultaneously. For instance, the latest Conference Board survey shows that expectations for increasing stock prices are among the highest since the late 1980s. However, citizens believe the […]
Jun 28, 2024
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