Those calling for a 50 bps rate cut next week should take a look back at January 2001 & September 2007 when the Fed started cutting cycles with a 50 bps move
If the Fed feels the need to go big because of a weakening economy, that's not bullish. Source: Charlie Bilello
‼️THIS HAS NOT HAPPENED IN AT LEAST 35 YEARS‼️
The spread between the 2-year US government bonds and Fed's rates FELL to -1.686%, the most in over 3 decades. In other words, bond market expects the Fed to cut BIG in the next months. Question: Is the bond market too dovish? Or is the Fed too much behind the curve? Source: Global Markets Investor, Bloomberg
Ahead of ECB meeting, we got some mixed messages about the central bank speed and extent of rates cuts - see below.
Meanwhile, the market see quarterly ECB rate cuts - see chart below. - European Central Bank (ECB) Governing Council member Gediminas Simkus told Econostream Media that he saw a “clear case” for an interest rate cut in September but regarded the potential for another one in October was “quite unlikely.” - Executive Board member Piero Cipollone told France’s Le Monde newspaper that recent economic data so far had confirmed that inflation was slowing, giving scope for the ECB to lower borrowing costs. “There is a real risk that our stance could become too restrictive and harm the economy”. - However, Bundesbank’s Joachim Nagel continued to warn about premature easing, given elevated wage growth and services inflation, in an interview with the Faz newspaper. Source: Bloomberg, T Rowe
BREAKING: Global net gold purchases by central banks reached 483 tonnes in the first half of 2024, the most on record.
This is 5% higher than the previous record of 460 tonnes set in the first half of 2023. In Q2 2024, central banks bought 183 tonnes of gold, marking a 6% year-over-year increase. On the other hand, this was 39% lower than the 300 tonnes of purchases seen in Q1. The largest buyers were the National Bank of Poland, the Reserve Bank of India, and the Central Bank of Turkey. Why are central banks stocking up on gold? Source: The Kobeissi Letter
Now that the Fed has given the "all clear" for cuts, the global easing cycle that is likely to gather force
Between 50 - 100 bps in cuts are priced for most central banks across advanced economies for this year alone. Source: Robin Brooks
What would a central bank rather own?
Source: Tavi Costa, Crescat Capital, Bloomberg
BREAKING: Odds of a 50 basis point interest rate cut at the September Fed meeting rise to 23%
There's now a 95%+ chance that interest rates are cut in September with a 78% chance of a 25 bps rate cut, according to @Kalshi Source: The Kobeissi Letter
BREAKING - Jackson Hole - it seems the Fed Pivot is here
Here's a summary of Fed chair Powell's remarks (8/23/24): 1. "The time has come for Fed policy to adjust" 2. Fed "will do everything" to support a strong labor market 3. Fed does not welcome further weakening of the labor market 4. Confidence has grown that inflation is heading to 2% 5. Balance of risks to Fed mandates has changed 6. Inflation has declined significantly toward the goal As mentioned by Nick Timiraos, the Powell pivot is complete: “The cooling in labor market conditions is unmistakable.” “It seems unlikely that the labor market will be a source of elevated inflationary pressures anytime soon.” “We do not seek or welcome further cooling in labor market conditions.” “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” “We will do everything we can to support a strong labor market as we make further progress toward price stability.” equities, bonds, cryptos, gold, etc. are all rallying post-statement. Bottom-line: Fed Chair Powell validates rate cuts soon, but didn't make any promises on size and extent. We believe that moving away from a restrictive monetary policy, to a more neutral stance, makes sense. We continue to believe the first fed funds rate cut will be -25bp in September.
