We were uncut before uncut was popular.
It’s awkward.
When we started to predict The Federal Reserve will not cut interest rates this year And there was a significant, and underestimated, risk that the Fed could raise interest rates next year. Breitbart Business Digest I was the lone contrarian: The Fed was expecting three rate cuts and the market was pricing in five or six.
Even the most scathing inflation forecasters were factoring in a rate cut or two in their forecasts. Our view was not smug, but it was well outside the consensus.
now Our views have become mainstreamThis week’s cover story Barons Readers are warned: “The Fed will not cut interest rates this year”
“The Fed is unlikely to cut interest rates in 2024. Rising inflation, a resilient economy, and a softening but still strong labor market diminish the need for easing monetary policy, especially as these conditions are expected to continue through the end of the year,” wrote Nicholas Jasinski, a senior writer at Barron’s who focuses on economics and Federal Reserve coverage.
The Federal Reserve will not cut interest rates this year https://t.co/oR8KihIAF6
— Barron’s (@barronsonline) May 31, 2024
Six months into my school life I was obsessed with an alternative band that nobody had ever heard of. All the popular kids are wearing band T-shirts.. We were into it before it was trendy!
The economy is too hot to cut
of Barons Reasons why you should do so The Fed is expected to wait and see The right thing to do is not cut rates, not cut rates. The core argument is exactly what we’ve been arguing: “Because the U.S. economy has performed better for longer than most people expected, we should expect the Fed’s policy stance to remain elevated for longer than most people expected.”
The Federal Reserve’s interest rate policy has been much less detrimental to economic growth than most economists and financial experts expected. It has been widely praised. The 2023 recession didn’t happenAs we predicted, the labor market is strong and consumer spending is doing well. Consumer sentiment surveys show that people are very unhappy with the economy, but that isn’t causing them to cut back on spending or save more in preparation for a recession.
As a result, there is no rush to cut rates, as advocates of rate cuts say the Fed should do. Preventive fellingThey point out that most economic data is necessarily backward-looking — it tells us what happened in the past but not what will happen in the future — so they want the Fed to make policy based on what will happen in the future, rather than what has happened in the past or what is happening now.
To be sure, forward-looking indicators such as the yield curve and leading indicator indexes paint a bleak picture for the future. I’ve been telling that story for almost two years now.For now, they’re most useful as a reminder that the economy is working very differently than in the past, rather than as a signal of what’s coming next.
Another major argument for lowering interest rates is Real interest rateThis is the interest rate after inflation. It looks like this: When inflation falls, real interest rates mechanically rise, tightening monetary policy. So if the Fed doesn’t cut rates, they risk letting real interest rates rise, tightening monetary policy without any Fed action.
The problem is that it also raises inflation. Real interest rates initially fell With inflation rising, rate hikes were halted this year, and suddenly, calls to watch real interest rates were muted. It was enough to make one think that the debate over real interest rates was prompted not by any dispassionate analysis, but by the conclusion that the Fed should cut rates.
Building the case against cuts
Today’s Construction Expenditures The data will deal a further blow to the view that interest rates are tight enough, much less that the Fed should cut them. Overall spending fell, despite Wall Street’s expectations of a modest increase. Single-family home constructionProperty prices, the most interest-sensitive construction sector, rose 0.1 percentage point, but are up 20.4 percent compared to a year ago.
(Photo: Jens Behrmann/Unsplash)
Moreover, the evidence is clear. Government spending is still fuelling the economyConstruction spending on manufacturing plants rose 0.9% in April and is up 17.1% from a year ago, thanks in large part to spending encouraged and subsidized by the CHIPS Act and the Curb Inflation Act.
But the allure of lower interest rates remains. Morgan Stanley echoed that view. On Monday, the Fed announced it would cut interest rates three times this year, starting with one in September. While that is viewed as a long shot by the market, it is still pricing in two rate cuts this year, giving the Fed a greater than 50% chance of announcing its first rate cut at its September meeting, just eight weeks before Election Day.
This is because we still Safely contrarian-parable Baronof Now we agree, and the data continues to show that we are fundamentally right.
