The Fed is super-stimulating the economy during what Powell said are good times economically, and Trump haters have decided not to wait until they lose the election to go violent against MAGA.
First, let’s see what others are saying about the Fed’s madcap decision to cut interest rates by 50%—something I was certain they would do, but as I said that doesn’t mean it is the right thing to do or that it makes sense with anything the Fed said.
It is, of course, the right thing to do if you believe the economy is already in a recession, as I do, and needs a shot in the arm … except that I wish the Fed would get out of the economic stimulus game anyway and let recessions correct our course. But, I mean, at least from that perspective, a large rate cut would make sense. Otherwise, it makes sense like this makes sense:
As you may have possibly heard, the Federal Reserve today cut their (in)effective Fed Funds Rate from an astronomical 5.33% to (doing the math…) 4.83% or so, of 50 basis points, to use the scientific term.
This will no doubt save many jobs, mostly those of ex-FOMC members.
The Fed clearly had to cut, because stocks and housing were at all-time highs, with the unemployment rate at a Great Depression level of 4.2%.
This will no doubt lower the cost of living for struggling Americans like Barry Sternlicht and Bill Ackman.
Also, Nvidia is 19% off its peak….
“Fed cut by 50 bps. The only reason to do this is to try to temper the cost of servicing the deficit & to help Democrats in November. Nothing in economy justifies aggressive easing. Not jobs, not stocks, not housing, not nothin’. Real rates will soon be negative again. We will see at least another 50 in cuts by year end, which will just make everything except servicing the deficit worse (& the deficit is rising so quickly that its servicing cost will only modestly decline).
This is another example of a weak-minded Fed guided by unreliable data. Let the games begin (and buy gold to save yourself, because the Fed is clearly hell-bent on destroying your dollars).”
Well, I’m not so sure nothing in the economy does merit this if you’re a believer in the idea that the Fed should cut rates whenever the economy is failing. (I’ve said many times I think their only job should be to manage the currency for 0% inflation.) However, for those who believe all that Powell said yesterday and in recent past days about the economy still being strong, then why not a minor cut just to trim the tabs a little?4
Rabobank also had some choice words for the Fed’s emergency-level cut during what the Fed says are good times:
If there was a strong case for a 50 bps cut, Powell did not make it at his press conference. He repeatedly stressed that the US economy was strong, but we should see the strong move as a commitment to keep the economy strong….
He used the word ‘recalibration’ several times….
Although Powell denied that the Fed had fallen behind the curve, this is exactly what recalibration means…. It got really funny when he said that the FOMC had been patient in waiting and this allowed them to make a strong move. Yes, if you get behind the curve, you have to make a big leap forward to catch up!…
When asked during the Q&A what his message to the US consumer is, Powell said that the US economy is in a good place and our decision is to keep it there. Really? A 50 bps cut as a message that the economy is strong? So if they cut by 75 bps the economy is booming? This sounds like something out of George Orwell’s 1984….
In the past, the Fed only cut 50 bps at the start of a cutting cycle in case of a severe deterioration in the economy or markets, such as the dot com bubble and the Global Financial Crisis.
The bank went on to stress another point I made yesterday:
Powell had a clear incentive to deliver a 50 bps cut before Election Day, because Trump has already made clear that he would not reappoint him as Fed Chair. In fact, he may decide to remove him prematurely. So Powell’s only chance of another term is by pleasing Kamala Harris and her fellow Democrats in the Senate.
Although Powell’s message was a mess, our argument for 50 bps would be the deterioration in the labor market that is likely to end up in a mild recession.
Belaboring the interest points
Certainly today’s jobless claims report doesn’t support a cut, as jobless claims (new and continuing) were down. I thought the Fed was data dependent.
As one market veteran pointed out to us this morning, “either The Fed is a bunch of idiots, or this data is total bullshit.” Fact of the matter is, Powell even admitted – after bringing up the massive revision to the payrolls data – that it is more likely the latter (bullshit data) than the former (idiots); though we suspect it’s a bit of both (blending with some political pressure).
Jesse Felder, founder & Editor of The Felder Report believes, as I do, that the labor market has crossed that tipping point where unemployment will suddenly go parabolic, today’s news notwithstanding. Corporations don’t seem to be firing at this initial stage as much as counting on attrition, which is usually the way they first start to reduce forces to avoid conflict. Amazon, for example, just announced that, starting in January, all hybrid workers who have been working part of the time from their own homes must return to work full-time. That is certain to cause some to go away on their own.
Other interesting points in the economic news
I’m of the opinion that the Fed knows there is trouble beneath the surface in the economy and that’s why it suddenly made a big cut. It would seem that corporate insiders know something is the matter because they are “selling like crazy,” according to Felder. Corporate insiders are selling $25 worth of stock for every $1 they buy.
This indicator, which has a strong historical correlation to economic downturns and earnings recessions, last peaked in late 2021, signaling the 2022 bear market. Jesse suggests this is a powerful early warning….
Of course, they COULD just be finally realizing profits. They COULD be.
Home construction is the biggest driver of the US economy typically, but August home sales plunged as prices continued to soar.
Sales of previously owned homes fell 2.5% in August from July…. Sales were 4.2% lower than August 2023. It marks three straight months of sales below the 4 million mark, annualized….
“Home sales were disappointing again in August, but the recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months.”
In other words, the Fed is back to jacking up the economy by lowering interest so housing prices can rise and still see sales. This is how the housing bubble was built in the first place. Return to policy as normal.
Tight supply is keeping the pressure on prices. The median price of an existing home sold in August was $416,700, up 3.1% from the same month in 2023. That is the highest price ever for August.
It’s not clear however that home buyers are going to take the bait this time:
We’ve been saying this for many months, and now Fannie Mae’s Economic & Strategic Research group is saying the same thing – the Buyers’ Strike is expected to continue despite much lower mortgage rates and a very sharp increase in active listings — because prices are too high:
“Although mortgage rates have fallen considerably in recent weeks, we’ve not seen evidence of a corresponding increase in loan application activity, nor has there been an improvement in consumer homebuying sentiment,” Fannie Mae said in the report today, lowering its forecast….
“We expect affordability to remain the primary constraint on housing activity for the foreseeable future, and we now think full-year 2024 will produce the fewest existing home sales since 1995,” Fannie Mae said.
War and politics
While its economic impact is unclear, one other interesting and unfortunate change today is that the wars in and around Israel just became greater … again. Following the two device-explosion attacks against Hamas and a promise by Hamas of a major reprisal, Israel decided to just get on with it in Lebanon and began flying in sorties to bomb critical defense structures.
After months of devastating war with Hamas in the Gaza Strip, Israel indicated its focus had shifted to its northern border with Lebanon, declaring a “new phase” to its simmering monthslong conflict with Hezbollah.
Israel Defense Minister Yoav Gallant spoke to this “new phase” in a video posted to X, noting that it will bring both risk and benefits. He warned that Hezbollah will pay an “increasing price” as time goes on.
While the device explosions brought a lot of sad civilian casualties, even to children, it’s a bit ironic to hear Hezbollah’s leader, Nasrallah, complaining that Israel is not fighting according to the rules of war, as Hezbollah has always shielded itself in civilian populations and launched indiscriminate attacks on Israeli settlements that made no attempt to restrict their hits to military targets.
As Nasrallah delivered his speech, Israeli warplanes flew over Beirut, breaking the sound barrier with sonic booms shaking the capital, in what appeared to be a show of might.
US politics also took a very unfortunate turn in the news today as it was reported that about twenty people seated behind Trump at his recent Arizona rally experienced serious eye damage. Whether it was from release of a chemical or someone lasering their eyes or someone trying to draw a target laser on Trump or trying to laser Trump’s eyes, the crowd took the hit in this new unconscionable form of violent politics.
“Many supporters seated behind Trump onstage went to the ER after the rally with “blurred vision” and “burning” to the eyes. I spoke to several who still have not fully recovered. As many as 20 were affected,” Kelly wrote on X.
Apparently, some Trump haters are not willing to wait until after they lose the election to get violent in the Year of Chaos.