CME Fedwatch rate cut odds for June barely changed despite a second hotter than expected CPI report. But the rate cut odds did change for November and December.
In response to a second hotter than expected CPI report, the market priced out a rate cut for December.
Near term odds through June barely changed. The odds of no cut in March are now 99.0% up from 98.0 percent yesterday.
The expectations for no cut in May were 81.7 percent yesterday and 86.1 percent today.
Fed Signals
The Fed signaled a rate cut for June because that is what it wants to do, data be damned.
The odds of at least one cut in June were 71.6 percent yesterday and 68.3 percent today.
The market has gotten the message the Fed will cut in June. This will hold barring some very hot CPI data in April, and perhaps even then.
Weighted Average CME Interest Rate Projections
The market was unfazed by the hot CPI data all the way to November.
Then in November the the expectations of higher for longer rose by 8 basis points, and in December another 12 basis points, for a total of 20 basis points.
A quarter-point cut is 25 basis points. So one rate cut was priced out.
Fed and Ex-Fed Comments
- Eric Rosengren, who headed the Boston Fed from 2007 to 2021, said the Labor Department’s reading shouldn’t fundamentally alter expectations for three rate cuts this year, as officials penciled in at their December meeting.
- Fed Chair Jerome Powell has signaled that inflation readings don’t necessarily need to be better than the mild ones recorded late last year for the central bank to begin lowering rates later this year.
- “If inflation seems more entrenched than we think it is, the first thing we would do is keep rates where they are for an extended period of time,” said Minneapolis Fed President Neel Kashkari in an interview last week.
Comments as reported by the Wall Street Journal.
Reflections on Asymmetrical Policy
The Fed has decided it will cut. So it will cut. It decided June, so June it is.
If CPI data is very tame or hot in April, this could change. But if so, it will be accompanied by a parade of Fed presidents yapping their intentions.
Any deviation from June will be a cut in May rather than a further pause in June.
The Fed has proven countless times that it errs on the side of too loose, allowing asset bubbles to form.
What About Recession?
Good question. The odds of a recession this year are much higher than the prevailing soft landing theory would have you believe.
If and when it happens, all the yahoos will be howling the Fed should have cut in March.
But one rate cut or even two are not going to matter. The Fed kept rates too low, too long again, allowing asset bubbles to blow. Asset bubbles will eventually burst no matter what the Fed does.
The Fed’s choice is to lean against them or allow them to get bigger. There is no point in history where the Fed has ever leaned against asset bubbles.
CPI Hot Again
For discussion of the latest inflation data, please see CPI Hot Again, Rent Up at Least 0.4 Percent for 30 Straight Months
For over two years, analysts said rent was declining or soon would be. But for the 30th consecutive month, rent was up at least 0.4 percent. Gasoline rose 3.8 percent adding to the misery.
Over the Rainbow View
Let’s check in with former Fed Vice-Chair Alan Blinder and his soft landing thesis.
Hoot of the Day “The Fed Has Reached the Soft Landing Runway”
Despite year-over-year CPI up 3.2 percent Alan Blinder says “The Fed has Already Achieved a Soft Landing”
Sticky-Price CPI
Meanwhile, the Atlanta Fed reports Sticky-Price CPI Is Up 4.4 Percent From a Year Ago
And Biden’s regulations, big union wage increases, and student debt cancellation are all inflationary.
So is the end of just-in-time manufacturing and global wage arbitrage.
The rise in Inflation is not transitory. It’s the recent decline in reported year-over-year inflation that’s transitory.
“The Fed has decided it will cut. So it will cut. It decided June, so June it is.”
???? “Signals” what signals? only signal i’ve seen or heard is “higher for longer” – and I’ve heard+seen this message A LOT.
WTF?
there was never any promise to cut.
there was never any promise for June, either.
am i misreading the article? or am i taking crazy pills?
the (only) consistent & clear message coming from the Fed – for many months now – is “HIGHER FOR LONGER”
cuts? sez who? (not Powell)
June? sez who? (not Powell)
these “signals” that Mish is imagining seem like pure fiction/wishful thinking.
Your prediction of stagflation is good. Why does no one discuss the impact of war on inflation? The Fed may want to cut in June, but the Neocons want war by Sept, and since Govt’s need the distraction of war to mask their irresponsibility, not to mention the Biden campaign, we will have more inflation for a while.
If the Fed has in fact “decided” that it will cut in June come what may then I think we can comfortably conclude that the Fed has already made the decision that the appropriate range for the inflation target is 3 to 3.5 percent rather than 2 and that they are comfortable with that. Ok then but it is going to be interesting to see if the bond market feels the same way about it.
Eh, maybe they’ll have their nuclear exchange between now and June… won’t be a need to keep rates high if everythings on Fire.
Interest rate policy, with simple deductive reasoning, tells us that the debt re-payments, INTEREST ONLY (RIGHT??) require a reduction back to ZIRP
34 Trillion and counting! WOW!
re: “It’s the recent decline in reported year-over-year inflation that’s transitory.”
You nailed it.
You wrote “CME Fedwatch rate cut odds for June barley changed despite a second hotter than expected CPI report. But the rate cut odds did change for November and December.” I think you meant barely not barley or is it a commodities issue?
Barely is correct Thanks
Simple, it’s an election year.
There are a number of sources of inflation. Our leaders should choose policies that lead towards a strong, economically sound, peaceful nation and abandon all the ideological crap. On-shoring will be a source of inflation but will be a huge benefit in the long run. War and misguided green policies are a source of inflation and both should be abandoned. All the race baiting and woke ideology are destructive and inflationary. They reduce quality of life and should be abandoned. The nations national character and education is in dire need of repair. This can be be done by cutting costs and divorcing the federal government from these functions. Less is more in this case. In short the Democratic party is an evil demon infesting this country. There entire party platform is inflationary and destructive. They need to be destroyed and replaced with a new positive, pro America Party.
For the good of the country the offices of President and Chancellor should be combined into one.
There is no need for a ceasefire, bc the fire ceased three months ago. Jasa became Jenin + Tul Karem. After Issa death Sinwar will hide deep inside the tunnels, like a rat, under two million refugees. He might rot there until his death. The 50/80 hostages motivate the IDF. Taking Rafa is a political con job.Thomas Friedman fear antisemitism. He is worried about his own skin.
Jasa was lost. The three whore states solution is no longer viable. Smart Palestinian politicians will finally get it. But the radical Islam war against the west, under the banner of a Palestinian state, have just began.
May someone impose your sick ideology on you. You deserve it.
Don’t preach morality.
30,000+ innocent people murdered. The hopes and dreams of hundreds of thousands people, God’s children, shattered and destroyed. And you want more. You are disgusting!
I am here to transmit data. U aren’t the target of my comments. I have zero respect for guys like u.
If u don’t like my comments ==> skip !!
Israel is a satanic evil country
Israel’s moral authority lies in the gutter. And they certainly are not a friend of the US or Europe. It’s always what’s best for them and how can they use us. Time for people to wake up to the reality of this one sided relationship.
The United Holy Land will bring peace to the ME. But first Israel has to eliminate the satanic Hamas.
Israel’s moral authority lies trampled in the gutter. And they certainly are not a friend of the US or Europe. It’s always what’s best for them and how can they use us for their benefit. Time for people to wake up to the reality of this one sided relationship. Time to cut this nasty nation lose to make it’s way in the world without Uncles Sam always pulling their brash arrogance from the fire.
It was clear Feb CPI was gonna be hot but Powell was still dovish. I suppose he is hoping economic conditions will slow down enough that it will keep CPI anchored.
Soweto MTA (NYC subway) capillaries are defective. The people who open the city
in the early hours of the morning and those who leave late at night are afraid to come.
They don’t have the money to drive and park. Post Giuliani Soweto is slowly dying.
If Trump wins Soweto cancer will grow faster. If CBOT leaves Chicago will become Detroit. Londonistan insurrection might lead to UK destruction. MPs are afraid to come and vote. Tourists are afraid to come.
The US, Europe and the UK are deflating.
If the Fed was truly concerned more about inflation than stimulating the stock market in an election year he would have never talked about future rate cuts in November
Sounds about right Mish. The fed will probably cut 2 or 3 times this year. And almost everyone will complain one way or the other.
Such as:
They should have already been cutting.
They should be cutting faster.
They should still be raising rates.
They should never have raised rates in the first place.
They don’t know what they are doing.
They are too political.
The fed should be shut down.
Etc.
My personal opinion on the fed is like my opinion on most things. There is nothing I can do about the fed other than pay “some” attention to what they do and figure out how to profit from it. Other than that, it is best to ignore the typical microscopic parsing of every statement the fed makes as it’s a big waste of time.
Meanwhile, in spite of the fed, the world economy continues to grow, as does the demand for ever more energy, including oil and gas. Because you can’t have economic growth without more energy.
Mish, I prefer this version of “Over the Rainbow”. It has the advantage that the song that follows proposes a solution.
link to youtu.be
Rates don’t matter. The inflation bubble will just grow faster. The exodus of participation will keep growing too. Earnings will vanish. Enterprise abandoned. Shortages will abound.
And even then, inflation will accelerate.
The feudal banking cabals will stop at nothing to keep their unearned wealth.
This will continue until it is rendered physically impossible by _______ (fill in your choice of disaster(s), conflict(s), even law(s), etc.)
You’re particularly cheerful today! But rates do matter. ZIRP is how we got in this mess. If the Fed kept rates as is and refused to reinstitute QE, debt deflation would ensue. That’s one way to restart the economy. But, they will choose money printing because that allows them to retain power and control.
I don’t expect any rate cuts in 2024 unless Powell does this for political/election purposes. Inflation isn’t going down anytime soon. Insurance costs, increases in minimum wage and gas are going to keep inflation high. I expect the next several months will show even higher inflation.
Political reason or pressure from lame street media in the pay of Woe Street.
They assiduously trot out “experts” to support the case for abandoning inflation targets.
They will also lie about inflation and the economy and forge the numbers.
He’s gotta cut at least once this year to toss a bone to commercial real estate interests that are heading for trouble.
I expect the next CPI report to show a greater inflation reading than today’s report. Gasoline prices here in central Florida were $3.20/gal last Monday. 3 days later the price had ballooned to $3.49. I also noticed that a bag of fresh green beans that had been selling for $2 for the last 4-5 months has increased to $2.50 this week. Inflation is still humming along. Energy prices factor into everything.
Lately a dozen eggs were $1.29, same dozen is now $2.79.
Back to zero in 2025, and not before.
So what? 25 basis won’t mean a damned thing to consumers or business.
Good point because a family member has a HELOC at the prime rate of 8%, which is usually about 2.5% greater than the Fed Funds rate.
So they are now mostly paying interest and a little principal compared to when the prime rate was around 5.5% in 2019.
A 0.25% drop is not going to help much.
I think the Fed wants the Fed Funds rate to be about 1.5% above inflation once it steadies, so that means a Fed Funds rate likely at 4.5%, and a prime rate of around 7%. I think 3% inflation rate will be the new norm.