If the Federal Reserve is starting to set the table for interest rate reductions, some parts of the market are getting impatient for dinner to be served.<\/p>\n
\u201cWhat is it they\u2019re looking for?\u201d Claudia Sahm, chief economist at New Century Advisors, said on CNBC just after the Fed concluded its meeting Wednesday. \u201cThe bar is getting set pretty high and that really doesn\u2019t make a lot of sense. The Fed needs to start that process back gradually to normal, which means gradually reducing interest rates.\u201d<\/p>\n
Known for formulating\u00a0the Sahm Rule\u00a0that uses changes in the inflation rate to gauge when recessions occur, Sahm has been clamoring for the central bank to start easing monetary policy so it doesn\u2019t drag the economy into recession. The rule states that when the three-month average of the unemployment rate is half a percentage point above its 12-month low, the economy is in recession.<\/p>\n
The 4.1% jobless level is only a short distance from triggering the rule, and Sahm said the Fed\u2019s insistence on holding short-term interest rates at their highest level in 23 years is endangering the economy.<\/p>\n
\u201cWe don\u2019t need a weak economy to get that last little bit out of inflation,\u201d she said. \u201cWe do not have to be afraid of a good economy. If the inflation job is done, or we\u2019re on that glide path, it\u2019s OK, the Fed can start stepping aside.\u201d<\/p>\n
Asked about the Sahm Rule during his\u00a0post-meeting news conference, Fed Chair\u00a0Jerome Powell\u00a0called it a \u201cstatistical regularity\u201d that doesn\u2019t necessarily hold true this time around as the jobs picture remains strong and the pace of wage gains decelerates.<\/p>\n
\u201cWhat it looks like is a normalizing labor market, job creation and a pretty decent level of wages going up at a strong level but coming down gradually,\u201d he said. \u201cIf it turns out to \u2026 show something more than that, then we\u2019re well positioned to respond.\u201d<\/p>\n
Markets, though, are pricing in an aggressive path for rate cuts starting in September with a quarter percentage point reduction, which would be the first since the early days of the Covid crisis.<\/p>\n
After that, markets expect cuts in November and December, with an about 11% probability assigned to the equivalent of a full percentage point lopped off the fed funds rate by year-end, according to the\u00a0CME Group\u2019s FedWatch\u00a0gauge of 30-day fed funds futures contracts.<\/p>\n
Instead of starting to take its foot off the brake,\u00a0the Fed on Wednesday\u00a0said it is keeping its overnight borrowing rate in a range between 5.25%-5.50%. The\u00a0post-meeting statement\u00a0did note progress made on inflation, but also reiterated that policymakers on the rate-setting Federal Open Market Committee need \u201cgreater confidence\u201d that inflation is heading back to 2% before they will be ready to lower rates.<\/p>\n
DoubleLine CEO\u00a0Jeffrey Gundlach\u00a0also thinks the Fed is risking recession by holding a hard line on rates.<\/p>\n
\u201cThat\u2019s exactly what I think because I\u2019ve been at this game for over 40 years, and it seems to happen every single time,\u201d Gundlach said, speaking to CNBC\u2019s Scott Wapner on\u00a0\u201cClosing Bell\u201d\u00a0on Wednesday. \u201cAll the other underlying aspects of employment data are not improving. They\u2019re deteriorating. And so once it starts to get to that upper level, where they have to start cutting rates, it is going to be more than they think.\u201d<\/p>\n
In fact, he thinks the Fed could end up slashing rates by 1.5 percentage points over the next year, a pace that\u2019s more aggressive than the policymakers charted when they\u00a0last updated the \u201cdot plot\u201d\u00a0of individual projections.<\/p>\n
Gundlach figures that the\u00a0consumer price index\u00a0will be below 3% soon, making real rates, or the difference with the fed funds rate, particularly high.<\/p>\n
\u201cIf you have a positive real interest rate that\u2019s even one and a half percent, that would suggest you have 150 basis points of room to cut rates without even thinking that you\u2019re being excessive about it,\u201d he said. \u201cI think they should have cut today, quite frankly.\u201d<\/p>\n<\/p>\n
If the Federal Reserve is starting to set the table for interest rate reductions, some parts of the market are getting impatient for dinner to be served. \u201cWhat is it they\u2019re looking for?\u201d Claudia Sahm, chief economist at New Century Advisors, said on CNBC just after the Fed concluded its meeting Wednesday. \u201cThe bar is […]<\/p>\n","protected":false},"author":0,"featured_media":7203,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-7202","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/7202","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/comments?post=7202"}],"version-history":[{"count":0,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/7202\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media\/7203"}],"wp:attachment":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media?parent=7202"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/categories?post=7202"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/tags?post=7202"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}