Do we really need those Fed cuts after all?

That was the question for traders at the end of a week defined by resilient — dare I say “robust” — US macro data.

It started with preliminary PMIs which suggested Q3 was “the best quarter so far this year for US businesses,” to quote directly from the color accompanying the S&P Global release.

Less than 48 hours later, the BEA said a key measure of underlying demand was far stronger in Q2 than initially thought, and jobless claims fell further to cap their largest two-week decline in four years.

Then, on Friday, we learned that inflation-adjusted consumer spending rose 0.4% for a second month in August, double the advance economists expected. Hell, there was even some good news on the housing front, where new home sales surged nearly 21% (even as contract closings on existing homes were predictably subdued in this week’s other housing update).

Put it all together and what do you get? I’m not sure exactly, but probably not a recession. Which means another 50bps of Fed easing by year-end (as narrowly tipped by the median 2025 dot in the SEP refresh) atop last week’s 25bps cut might be overdoing it, particularly if you suspect policy’s not actually restrictive.

My guess is that the Fed will find an excuse to squeeze in those cuts, particularly given enormous political pressure, but it’s worth noting that even after a pullback on Friday (likely attributable to the soft core inflation read in the PCE report), the dollar had its best week since July thanks to back-to-back advances on Wednesday and Thursday.

For 2025, the greenback’s still down around 10% and it’s possible a significant rebound’s on the cards contingent, obviously, on a decent jobs report covering September.

For now, good news on the macro front’s just good news, but as I never tire of reminding folks, the world’s a friendlier place when the dollar’s back-footed. Because a weaker dollar is liquidity positive, and vice versa.

The simple figure below shows you the weekly change in 10-year reals, which came into Friday on track for a second straight advance. As discussed in “Someone Has To Be Wrong,” the decline in real yields since the beginning of June goes a long way towards explaining risk-asset buoyancy. Lower reals and a weaker dollar go hand-in-hand — both make financial conditions easier.

Risk assets — e.g., stocks — will tolerate higher reals as long as the move is i) predicated on better growth outcomes and not, for example, a hawkish monetary policy shift, and ii) not too rapid. The nascent uptick checks both of those boxes, which is to say it looks safe. For now.

In his latest, BofA’s Michael Hartnett spoke to all of the above in the context of what he described as “froth” in gold, crypto and stocks.

“The past four weeks [saw] record inflows to gold, the past two weeks [saw] the second-biggest inflows to equity ETFs ever [and] the macro now says we don’t need two Fed cuts by year-end,” he wrote.

A correction in stocks, crypto and gold accompanied by higher US yields would be “healthy,” Hartnett said, as long as any unwind of the consensus “short USD” trade doesn’t become “disorderly.”

If you’re wondering what would count as “disorderly,” Hartnett suggested things could get dicey in the event the DXY rallies to 102 or higher.