Recalibration
October 1, 2024
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–Powell’s speech was succinct. Here’s all you need:
That decision [50 bps] reflects our growing confidence that, with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in an environment of moderate economic growth and inflation moving sustainably down to our objective.
Looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance. But we are not on any preset course. The risks are two-sided, and we will continue to make our decisions meeting by meeting.
–The market took it as a signal of slower easing. FT this morning: “Powell signals Fed will revert to quarter-point cut in November”. BBG: “BlackRock’s Fink says market is wrong on Fed rate-cut bets.”
–Front end has been pricing substantial cuts, as everyone knows. Yesterday, a bit of air came out. SFRM5 was the weakest contract, falling 13 bps to 9679. The high in that contract was 9700.5 on 16-Sept, so it’s gone from 3% to 3.21% in the last half of September. The current FF target is 4.75 to 5.00, so M5 is still pricing about 150 bps of ease by summer. The PEAK contract on the SOFR strip is now SFRH6 at 9702.5. OK, so let’s say 3% is the terminal rate, might even be neutral. Maybe things are priced about right, not wrong, like Larry says. “I’m smart and I want respect.”
–Anyway, there doesn’t seem to be a lot of edge from here. Escalation risks are obvious in the mideast and Russia, supply lines could be impacted due to the longshoremen strike and devastation in the southeast, the election looms, and of course the Diddy tapes are floating around. Flight-to-quality vs inflation risks and the need for gov’t re-building, all against a backdrop of an unsustainable debt build-up. From the Eagles: “Somebody’s gonna hurt someone. Before the night is through.”
–Today’s news includes S&P Mfg PMI expected 47.0
ISM Mfg 47.5 from 47.2
JOLTs unch’d from last at 7673k
