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The Risk-On, Risk-Off Fed-Jobs Tactical Equity Matrix
I'm going to eschew the temptation to make jokes about highly-paid forecasters stating the obvious.
Why is no one talking about a possible pause and 50 in December? GDP trending at 3% and if NFP/UR comes in strong I’d think Powell would want to keep that option on the table. Swaps are essentially pricing a 0% probability of a pause in November but are pricing in ~25% chance of 50bps cuts through the December meeting. Who’s right?
Yeah, November “pause” odds were woefully mis-priced already. Now they’re priced like lottery tickets, which is to say priced as though the Fed will cut on November 7 no matter what the data shows.
Maybe that’s right. And it’s important to remember that a mispriced / misplaced bet isn’t necessarily a bet that’s going to pay off if you take the other side.
But I don’t think the odds of a “pause” in November are 0%. If they are, then this whole thing is asinine. Read Goolsbee’s comments on Monday. If we’re just so hell-bent on cutting 200bps over the next 9-12 months that by God nothing’s going to stop us short of, you know, 750k NFP, 2% UNR and 17% headline CPI, then we may as well just call Fed funds 3% now and be done with it.