Everything has reversed, including the dollar. This is obviously massive profit taking now in everything. Let’s see what the reason is tomorrow. If it’s just profit or if there’s something else under the hood.
On the road right now, using a phone. But this is very big news. We promised it’s the last post we will send today. And zero posts will be sent tomorrow except for tomorrow’s p.m. post.
We wrote today thinking that it might be time to get Zoltan Pozsar’s “volatility moment“. Instead, we got a situation that virtually guarantees inflation will return inside of six months. The only thing keeping inflation down going forward will be the continued suppression of oil prices.
Here’s the whole situation in concise form.
The news:
FED CUTS INTEREST RATE BY 50 BASIS POINTS
U.S. (SEP) FED INTEREST RATE DECISION ACTUAL: 5.00% VS 5.50% PREVIOUS; EST 5.25%
VOTE IN FAVOR OF POLICY WAS 11-1, WITH FED GOVERNOR BOWMAN DISSENTING; BOWMAN PREFERRED A 25-BASIS-POINT REDUCTION
The questions:
Is Powell on drugs, politically motivated, or is there something bigger going on behind the scenes?
It’s hard to believe the politics had nothing to do with his decision. However, that influence aside let’s answer the question and no one certain terms.
The answer:
The economic outlook and inflation data completely corroborates his decision and shows an all guaranteed 2% inflation in the near future. That gives people who are buying things little comfort. But the fact remains, he pulled the trigger because inflation is definitely on a path to his target.
For him, this is a triumphant moment. It is in essence, a mission accomplished statement. Not cutting rates would have signals that he was worried about inflation. Inflation will likely reignite. But that’s not what’s going on here. What is happening right now is, the man is taking a victory lap and doing it with a clear conscience.
For data supporting his decision:
The Sarcastic comments:
The Markets:
Gold took off the dollar got slammed, stocks also rallied very well. Silver rallied strong, but did not truly outpace gold as much as you would think thus far. Stocks actually retraced a good portion of their gains, which is not to be unexpected. What is pleasant is the fact that there is little to no profit in gold. Which implies The buying was not hot money and intends to stay on board longer.
The market that usually would skyrocket on information like this is the oil market. While it rallied off the lows is still nowhere on the day. Implying some things that we’ve said recently: specifically the government does not want it to rally too much as it hurts Russia to keep oil down.
The post mortem:
This just completely destroys sell season flows. There was selling, there will still be selling, but that selling has been absorbed in a tsunami of buying interest for multiple reasons.
The first reason is directly related to the Brick summit. The second reason, anticipation of fed easing. The third reason central bank continued buying. While the third reason may not be the reason right now, it has underpinned this rally every step of the way.
Fed breakdown via newssquawk
FOMC cut rates by 50bps to 4.75-5.00% (exp. 5.00-5.25%) through an 11-1 vote (Bowman called for a cut of 25bps) and it sees 50bps more cuts this year. Fed stated that inflation has made further progress toward the 2% objective and remains 'somewhat elevated', while the FOMC has gained greater confidence in inflation moving sustainably toward 2% and judged that risks to employment and inflation goals are roughly in balance. Furthermore, it will carefully assess incoming data, the evolving outlook and the balance of risks in considering additional rate adjustments, as well as noted that the economic outlook is uncertain and the FOMC is attentive to risks on both sides of the mandate.
Fed sees rates ending 2024 at 4.4% (prev. 5.1%) and 2025 at 3.4% (prev. 4.1%), while it sees rates ending 2026 at 2.9% (prev. 3.1%) and 2027 at 2.9% (exp. 2.9%), with the longer run view at 2.9% (exp. 2.9%, prev. 2.8%).
Fed Chair Powell said in the post-meeting statement that the Fed is not on a preset course and will go meeting-by-meeting on decisions, as well as noted that economic projections are not a plan or decision, and that policy will be adjusted as necessary. Powell also said if the economy remains solid, the Fed can dial back the pace of cuts and equally if the labour market deteriorates, the Fed can respond the economy is strong overall, while he added the is Fed committed to maintaining the economy's strength and expects GDP growth to remain solid. Furthermore, he said the rate decision reflects growing confidence that strength in the labour market can be maintained and noted that inflation has eased notably but remains above the Fed's goal.
Fed Chair Powell said during the Q&A that there has been a lot of data including during the blackout in response to why the Fed has opted for a 50bps move and that benchmark revisions showed payrolls may be revised down, while he stated the Committee concluded that a 50bps rate cut was the right thing for the economy and reiterated that future decisions will be made on a meeting-by-meeting basis, as well as noted there is nothing in the projections that suggests the Fed is in a rush and they can go quicker, or slower, or pause on rate cuts if it is appropriate. Powell also commented that no one should look at today and think this is the new pace and he does not think the Fed is behind the curve with the rate move timely and a sign of the Fed's commitment to not get behind.
Thanks for the prompt notification. Saw an interview with Felix Zulauf in which he detailed the case for Fed rate cuts, a return to QE in even larger numbers, a surge in inflation and the return of commodities as a safe haven. Travel safe and Be Well.
Gold money is smart money and it’s calling bs on Powell. There is no reason to raise 50 basis points back to back unless they see trouble in the economy.
Given the latency between Fed rate cuts and the 1987 crash, any chance that if Trump can’t be stopped before he wins in Nov, Plan B is crashing markets between the election and inauguration?
Algos running the reaction now? Seems there was some double/triple knee-jerk trades going on.
Of note: Uranium showed zero correlation to today's action. Makes sense, since no one's going to build/close a reactor based on 50bp. And there's no substitute fuel to be had for current operators. Business as usual.
Thanks for the prompt notification. Saw an interview with Felix Zulauf in which he detailed the case for Fed rate cuts, a return to QE in even larger numbers, a surge in inflation and the return of commodities as a safe haven. Travel safe and Be Well.
Gold money is smart money and it’s calling bs on Powell. There is no reason to raise 50 basis points back to back unless they see trouble in the economy.
Given the latency between Fed rate cuts and the 1987 crash, any chance that if Trump can’t be stopped before he wins in Nov, Plan B is crashing markets between the election and inauguration?
Algos running the reaction now? Seems there was some double/triple knee-jerk trades going on.
Of note: Uranium showed zero correlation to today's action. Makes sense, since no one's going to build/close a reactor based on 50bp. And there's no substitute fuel to be had for current operators. Business as usual.