Thread: Federal Fund Rate Cut Probability

With inflation where it is, the Fed's going to have some tough decisions to make when the recession hits. The longer rates stay higher the bigger chance for a recession instead of a soft landing.

The FED rate is a normal rate. They will not reduce it. In fact, if inflation rears up again they will raise it. They will hold it though a mild to moderate recession.

• We are not headed into a deflationary spiral - like 2008.
• We are not forcing people out of the workplace - like 2021.

What we have to watch is inflationary actions by the Treasury. The FED is not mandated to provide cheap Federal borrowing. They are mandated to support the dollar. So, if Congress and this Administration want to continue their spending there is no mandate that the FED support such spending with low rates. They could just tell the Fed Gubmint to pound sand. That is what I expect.

Originally Posted by TommyIV

The probability of the Federal Open Market Committee (FOMC) cutting rates in their March meeting dropped from 76.9% yesterday to 65.2% today. A more than 10% drop is awakening the market's archnemesis: uncertainty.

https://www.cmegroup.com/markets/int...atch-tool.html

The probabilty of a March rate cut is now down to 55% after the retail sales report this morning. Basically a coinflip.

2023 wasn't a good year for tech layoffs.

The tech industry has seen more than 240,000 jobs lost in 2023, a total that’s already 50% higher than last year and growing. Earlier this year, mass workforce reductions were driven by the biggest names in tech like Google, Amazon, Microsoft, Yahoo, Meta and Zoom.

A comprehensive list of 2023 & 2024 tech layoffs | TechCrunch

Layoffs still happening, but this article predicts it won't be as bad as 2024.

So far, 2024 is off to a start that looks a lot like 2023—with a week full of job cuts from tech companies.

Duolingo cut 10 percent of its contractors earlier this week, citing artificial intelligence as part of the reason. Twitch announced a cut of 500 people, and its parent company, Amazon, also made moves to lay off hundreds of employees across Prime Video and MGM Studios on Wednesday.


Google followed, also laying off hundreds of employees working on its Google Voice assistant, with additional reorganization affecting its hardware teams working on augmented reality, the Pixel phone, Fitbit watches, and the Nest thermostat. On Thursday, Discord said it would lay off 17 percent of its staff after hiring too quickly in recent years.


It’s a flurry of announcements that feels all too familiar, but experts say these layoffs don’t necessarily mean 2024 will prove as brutal as recent years.

No, the Great Tech Layoffs of 2023 Aren’t Happening Again | WIRED

I just wonder what happens when the recession hits.

Deflation is happening outside the US, namely China. Not sure if it's counteracting the "inflation reduction act" but it's helping somewhat.

Velocity of money has been trending downwards since 2007 with a few bear rallies, but even the one that started in 2020 appears to be rolling over. Velocity of money slows during recessions.

M2 Velocity of Money Chart

A few problems linger. Unemployment has nowhere to go but up and two wars are in stalemate that the US military complex is trying to get the more involved. Wars are financed by printing money - lots of it. The only answer to unemployment since the New Deal is printing money. You don't need 500 guys with shovels digging ditches anymore.

Pensioners might get their big yearly SS raises, but what it's worth is another story.

The big surge in equities, esp small caps last 3 months was due to rapidly lowering gas prices and Inflation.
With Inflation falling from 9% all the way to 3% the Street was banking on Inflation continuing to fall towards the Feds 2% target rate.
Well, now Inflation perked back up to 3.4%...and Oil has stopped falling, and is drifting slightly higher, and could go higher if escalation occurs w/ Iran due to recent attack on US Military.
Many analysts felt the Market had already priced in 6 rate cuts this year, with the huge push upward in stocks.

So I found todays TSP Survey results quite interesting, and I agree with them.
As always we could be wrong, but if we (our survey) is right, and the Fed says no March Cuts, and any cuts this year will be data dependent, what do you think is going to happen to inflated stocks in the short term?
Poll.jpg

Originally Posted by FireWeatherMet

As always we could be wrong, but if we (our survey) is right, and the Fed says no March Cuts, and any cuts this year will be data dependent, what do you think is going to happen to inflated stocks in the short term?

Tantrum?

TLT is making an intermediate term low along with a 50/200 bullish cross. Bond prices up means the bond market sees interest rates going down. No idea on the timing of it though. UPS layoffs don't happen during booms.

Originally Posted by Bullitt

With inflation where it is, the Fed's going to have some tough decisions to make when the recession hits. The longer rates stay higher the bigger chance for a recession instead of a soft landing.

Well, there is NOTHING that even remotely suggests Recession is coming, other than Politically motivated Talking Heads on some media outlets hoping for one.
It would have to be something unseen right now, a Black Swan event of some sort.
Saying that, there are lots of "vaguely colored swans" flying around right now, Russia/Ukraine...Hamas/Israel...Iran arming Houti's....Iran backed attack on US Military.

Nothing in the US economically is suggesting Recession...quite the opposite...the Economy is running a bit hot right now...hundreds of thousands of new jobs every month, GDP past 3 years averaging the strongest 3 year economic growth in almost 4 decades.
So the economy has shown to be resiliently strong enough to grow at current rates...so as long as they don't go significantly higher, not sure where the "coming recession" rationale is coming from?

Originally Posted by FireWeatherMet

Well, there is NOTHING that even remotely suggests Recession is coming, other than Politically motivated Talking Heads on some media outlets hoping for one.

I would say the massively inverted yield curve over the last 18 months was the key suggestion. So far it has been a swing and miss, however.

I'm not predicting a recession since I'm not good at predicting the future. Recessions are a fact of life and I fully expect to see 10+ additional ones in my lifetime.

If things are so good, then why would anyone be talking about cuts? GDP was mostly government spending so let's not get carried away. The smartest minds out there, JPM, BAC and GS are predicting four or five cuts this year mostly on proactive measures. The fed has acknowledged they've been too optimistic in their future predictions in the past.

Why is the fed forcing all banks to tap the discount window at least once a year starting in 2024? Why these fire drills all of a sudden?

My point on inflation and when the recession hits is, we're at 3.35% now which is higher than the 2% target. What will a return to animal spirits do to this number?

Originally Posted by Bullitt

I'm not predicting a recession since I'm not good at predicting the future. Recessions are a fact of life and I fully expect to see 10+ additional ones in my lifetime.

If things are so good, then why would anyone be talking about cuts? GDP was mostly government spending so let's not get carried away........

I agree there will be a Recession sometime in the future. I just don't see the signs of one now based on near record low unemployment, GDP past year above 3%.

As for "Gov't spending fueling growth, well that was the case from 2017-2019, as well as the 1980's with massive gov't spending on defense fueling much of the economy's growth via the Gov't Debt credit card, so nothing different today. It was only the 1994-2000 period where we had strong growth while greatly reducing the Deficit, with Gov overspending playing no role.

I know that the Inverted Yield Curve is a "Technical Signal", but its been inverted for almost 2 years. It would be interesting to go back to previous inverted yield curves. and see what was the longest time period between 1) The Yield Curve going Inverted and 2) The onset of Recession. If in all those other cases its just a matter of a few months, then something is different today.

But excellent point on "Why Would We Need Rate Cuts" if the economy is doing so well?
The answer seems simple, and was answered by Powell the other day...we DON't need them right now, definately NOT 5 or 6.
As long as we are done with rate hikes, and inflation doesn't rise to above 4% forcing more hikes, the economy seems resilient enough to operate at current levels which historically is at the same or lower rate levels during the 1980's economic boom, or the even stronger growth of the mid-late 90's. I think the emergency rate cuts to near Zero after 9/11 and the 2008 Crash spoiled us to think rates should always be near zero, and thats not the case.

Still keep an eye out for any Black Swans flying around, lol.

Fed Rate.jpg