Fed Laments ‘Lack Of Further Progress’ On Inflation, Unveils QT Taper
The Fed stayed camped at terminal for a sixth consecutive meeting on Wednesday, as expected.
May's "decision" was no decision at all. Traders long ago gave up on a rate cut before the June SEP meeting. By now, June's out too. Indeed, markets this week faded all but one of what, as of mid-January, were more than six cuts priced into the forward curve.
Just as this week's policy deliberations began, an overshoot on the Employment Cost Index found 2024 rate-cut pricing trimmed inside of 30bps, ne
Powell wants to cut so bad
With FOMC frozen between unreadiness to cut and unwillingness to hike, seems Fed may recede as a market factor for a time. Since the Fed often has a counter-cyclical lean, could imply more market volatility around economic data. To a point – presumably the Powell Put is still there should economic data weaken alarmingly.
Are we just witnessing the flip side of passive tightening? If Fed is holding terminal in the face of higher inflation while it also slows the pace of QT, that is passive loosening and yet everyone remains laser focused on the FF target range. Haven’t we essentially already gotten our first quarter point “cut”?
Federal budget deficit is expected to increase in 2025 ($1.8T) over 2024 ($1.6T) per the CBO. In 2025, this means the deficit will exceed 6.1% of GDP.
I still believe it matters what the deficit is spent on. There are good and bad deficits because some spending has a better chance of providing a long term benefit for the US than other types of spending. However, if deficit spending in 2025 is in similar categories to what it is in 2024- it is hard to believe there will be any interest rate cut(s).