Do you think LA was hate watching the opening ceremonies? The Santa Monica Pier vs Arc de Triomphe. The Pacific Wheel instead of the Eiffel Tower. The Getty vs the Louvre? I can already see the Parade of Nations slowly meandering down the 405, covering 2 miles in four hours. “So basically, like any other day”? Quick, cut to the Hollywood sign and give them the old razzle dazzle!
I love the Olympics because we celebrate the obsessive pursuit to win. These athletes have been driving themselves toward a single moment their entire lives. They get up in the middle of the night to train, juggle jobs or school, family responsibilities, and then train some more. Through injuries. Personal issues. Heartbreak. Every. Single. Day. God, I love that.
Somewhere along the way it’s become taboo to celebrate winning. “I just feel like the Olympics glorify the hustle culture…”
YES! When did “hustle” become pejorative? Oh, you don’t want to work hard so you resent people who do? Got it.
If you feel that way, fine. We can’t be friends, but that’s probably ok with both of us. But here’s where we have a real problem…
You’re good with me obsessing over winning in business as long as you don’t have to, right? But explain why you think the winnings should be evenly distributed? No sacrifice, no risk, no lost sleep, but your “fair share” of upside?
Would you ask the Olympians to share their medals with you, too? Winners win, and we should acknowledge their hustle and celebrate their efforts.
Speaking of winning, JMo inflation update! As a reminder, I have 2.99% and under and JMo has 3.0% and over. Friday’s report came out at 2.63%, basically matching last month’s report.
JMo Core PCE Wager Update
January 2.94%
February 2.83%
March 2.83%
April 2.79%
May 2.62%
June 2.63%
Average 2.77%
JMo needs Core PCE to average 3.23% or more the back half of this year to win.
Where am I taking The Real Boss for vacation?
This Week
- 10T 4.19%
- German Bund 2.41%
- 2T 4.39%
- SOFR 5.33%
- Term SOFR 5.35%
- Durable Goods Orders -6.6% vs 0.3% expected
- GDP much stronger than expected at 2.8%
- Personal income came in below expectations, potentially signaling cracks
Bronze Medal – Inflation
“The Fed always waits too long.” – skeptic
“Inflation is still too high and the labor market is super strong” – same skeptic using backward looking data
I just don’t understand all the inflation worrywarts. Is it 2%? Obviously not. But Core PCE was 4.3% this time last year!
Bill Dudley said he changed his mind because the data changed. I’m glad he’s finally onboard, but the data has been signaling this for quite some time if you were willing to pay just a little bit of attention. How long have I been highlighting the PSU Alternative Inflation Index? It’s at 1.7%, just waiting for the government data to catch up.
“But JP, Powell told us his favorite inflation measure is supercore and that’s still way too high” - JMo
Fair point, but raise your hand if you knew the last two monthly prints of the supercore were negative.
All the people, like JMo, that have been talking about inflation for the last 10 years had their moment in the sun.
“Gather around youngins’, time for another inflation bedtime story.”
“Awwww, not again Grandpa JMo!”
“Once upon a time, during a very brief window, your Grandpa was right about inflation…”
“But didn’t you lose a big wager?”
“Now now Lil JMo, it’s not all about winning…”
“Quick, eat your cookies before we have to pay the Grandpa tax!”
FOMC Meeting – Wednesday
I’ve been in the July cut camp, pretty much out on a limb solo. It felt good to see Mohamed El-Erian and Bill Dudley join me out on that limb last week.
I think the GDP print gives the Fed some cover fire this week to not go full dove. I don’t see the benefit of them signaling a cut in September the way the market is expecting. The odds of a Sept cut are already 100%, what’s to gain by confirming that?
I will be very interested in Powell’s comments about the labor market. At three consecutive meetings he has brought up the possibility of “unexpected weakening” in the labor market as something that would cause more/faster cuts. He is absolutely paying attention to the labor market.
Last week I highlighted the Fed’s own models for determining the appropriate level for Fed Funds. Four out of five of these models say the policy rate should be at 4%, not 5%+.
But that graph didn’t attempt to forecast appropriate levels, so let’s look at how seven Fed models forecast the policy rate over the next 18 months. This was last updated May 31 and doesn’t get updated again until September 31. I suspect the path will be even lower after the next update.
Median Fed Funds
Y/E 2024 4.5%
Y/E 2025 3.5%
The Fed is still cutting this year.
Here’s my best attempt to visualize the Fed’s dual mandate and why they should be focusing more on jobs than inflation right now.
Labor Report - Friday
Does it even matter what the headline job gains are on Friday? They’ll just revise it lower next month. Last month they revised the prior month two months by 111k.
I think the unemployment rate is more important right now because I trust that survey data more. Unemployment is at 4.1%, the highest level since late 2021. If it simply continues to climb at the same pace it has this year, we will finish the year at 4.5%.
Unfortunately, unemployment rarely moves in a nice linear fashion. Once the wheels fall off, they fall off. I don’t think we are there yet, but the longer the Fed keeps rates high, the more likely the economy is to break.
I think Powell is well aware of this fact.
Rates
Odds of a September cut are 100%. There’s actually a 12% chance of two cuts.
Odds that the Fed has only cut once by year end are just 2.1%. Meanwhile, there’s a 7% chance they’ve cut four times.
The market is always wrong, but clearly the momentum is towards lower rates. And since the Fed always ends up cutting more than expected, the market is pricing that in as well.
I don’t see the T10 breaking through 4.12% based on Powell’s press conference. And it would take a huge miss on Friday’s job report, too. I think we are rangebound until it becomes crystal clear things are deteriorating and the Fed cuts are imminent.
The Week Ahead
Olympics. Hustle. Winning.
