Say goodbye to interest rate cuts
A rate cut would be a recession this year.
Last year’s ghost recession It looms large over the economic landscape, casting a cloud of uncertainty that grips market participants and policymakers alike. Many economic indicators indicate that a recession is on the horizon, and some economic forecasters have announced that there is a 100 percent chance that the economy will fall into recession.
We warned you about it very early on. The data coming in was too strong. It’s very possible that the economy could slip into a recession, and the first few months of this year have made us believe there won’t be a recession at all. The rate hikes that everyone claims led to very restrictive monetary policy never seemed to us to be that restrictive, and the Fed did not think they were necessary to shrink the economy. The company never raised interest rates above 6%.
As the year began, markets and policymakers (including Fed officials) were confident that the Fed would cut interest rates this year. In many ways, this was just a continuation of the failed story of the previous year. It relied on the idea that the Fed’s policy was to: very restrictive Therefore, at some point you will need to relax.
What does Fed policy limit?
But where is the evidence that monetary policy has a significant impact on the economy? nominal gross domestic product It grew at an annualized rate of 4.9 percent in the fourth quarter of last year, 8.3 percent in the third quarter, 3.7 percent in the second quarter, and 6.3 percent in the first quarter. real GDP growth rate This was the sixth consecutive quarter that the Fed beat the sustainable long-term trend it expects.
Considering this growth pace, It’s safer to view Fed policy as largely irrelevant. At the moment, or perhaps just as accommodative.
The last refuge of interest rate cutters is the famous idea that: “Long and variable lag” Monetary policy is about to begin in earnest soon. But this story is past its sell-by date. The Fed has not raised interest rates since July of last year. Almost all of the rate hikes occurred more than two years before he did, and the additional hikes made after December 2022 are only 100 basis points. If interest rates were going to depress the economy, they would have done so by now.
The U.S. economy is dynamic, pulsing, and huge, and its strength defies conventional wisdom that calls for an accommodative monetary stance. In this landscape of rich growth, consumption expenditure The economy remains very strong, supported by a growing appetite for work, rising incomes, and rising wealth in the form of home prices and stock prices.
Last month, the government reported: Recruitment By the end of December, the number had increased to 9 million. Figures for the end of January will be available on Wednesday. The number of job openings is expected to drop to 8.9 million. There are still a large number of job openings available. Even the most bearish forecast of 8.7 million jobs would require 1.2 million more jobs than seen at the height of President Trump’s hiring boom and 2.6 million more jobs than the pre-Trump record high. Become.
of Payroll calculation for non-agricultural sectors In January, that number soared to 353,000, raising doubts about rate cuts in the bond market. The consensus estimate for February’s numbers is 180,000, which will still be strong. However, given last month’s very low levels of jobless claims, further upside surprises are likely.
The uncut rebel army is growing
We’re no longer alone in thinking the Fed won’t cut rates this year. Jim Bianco of Bianco Research has been defending this position since last summer, and defended it again on CNBC on Monday. last week, Thorsten Slok of Apollo Management changed his perspective This year it’s one of the uncut ones. Larry Summers has warned that the Fed may indeed raise rates, and we share that view.
I’m on CNBC talking about No Landing, Inflation Bottoming out, China, the Fed, and the bond market.
All videos are herehttps://t.co/WO2AOPLIbu pic.twitter.com/loLev9jsnj
— Jim Bianco (@biancoresearch) March 4, 2024
meanwhile, Inflation continues to sit on a stubborn perch, who looks at the Fed’s 2% target with disdain and threatens to flee again. We have argued that there are signs that inflation is already taking flight, with service sector prices rising rapidly and measures of underlying inflation such as median inflation and trimmed average rising.
Fed officials have made it clear they think that will happen. It would be disastrous to cut interest rates only to raise them again. If inflation spikes. Therefore, we believe the Fed will not cut rates as long as there is a credible risk that inflation will start rising again.
Powell speaks to the House and Senate
This week’s Fed chair Jerome Powell Step into the Congressional Coliseum to deliver the Speaker’s biannual testimony before the House and Senate.Mr. Powell is very likely to face: A chorus of outraged Democrats They argue that monetary easing is long overdue. It’s very likely that Republicans should put Democrats on center stage, if only to establish further evidence that Joe Biden’s party doesn’t really care about lowering inflation.
Very likely. upcoming presidential election It will be determined, at least in part, by the question of inflation. Despite the Biden administration’s efforts to blame inflation on corporate greed and foreign powers, a majority of Americans believe his policies will cause prices to rise further in the next presidential term.why don’t you let me The Democratic Party openly advocates monetary easing policy. Even though inflation is still raging?
