Markets have a 97% probability of a cut this week, which means the Fed is definitely cutting. With odds that high, the Fed would have leaked stories by now if they weren’t. If someone in your office says, “I don’t think they’ll cut”, you should bet them.
That will bring Q4 total cuts to 1%. That allows them to slow the pace next year because they got off the brakes and now can recalibrate.
After a couple painful years of coal, Jay$ finally brought some real gifts this year.
Last Week This Morning
- 10T: 4.40%
- 2T: 4.25%
- SOFR: 4.62%
- Term SOFR: 4.38%
- CPI as expected
- PPI a little bit hotter than expected
- England had negative GDP
- China went full dove mode with the most explicit commitment to much lower rates possible. Their 10yr sovereign bond hit an all time low of 1.77%.
- China is dealing with outright deflation. Not disinflation, deflation.
- Ohio State is gonna win it all, aren’t they? I can already see the Ryan Day redemption story headlines. Can we put Michigan back in as a wild card selection?
- Unfortunately for me, my dear friend Michigan fan got Lavar Arrington to record a 60 second video for me. I hate being in debt to a Wolverine.
We had the holiday party Friday night, then drove to Atlanta for sports all weekend. That means you get an abbreviated newsletter this week!
Fed Meeting This Week – Wednesday
'Twas the night before FOMC, when all through the Street,
Not a trader was doubting, with odds so sweet;
The probabilities at 97% with confident care,
In hopes that Jay Powell's cuts soon would be there;
Penn State made the playoffs, while Michigan sits at home mad,
Reminded us sometimes karma's not really that bad;
While Core PCE at 2.8% made some hearts sink,
Monthly data showed progress - better than you'd think
While fears of a 5% T10 caused some fright,
Like my inflation predictions, they won’t be right;
Cap costs have fallen from their terrifying peak,
As markets price fewer cuts week after week
When out on the curve there arose such a clatter,
Some screaming "Inflation's back!" - but really what's the matter?
The monthly numbers show no cause for such fright,
Base effects explain the headline's temporary height;
DOGE barks about spending, wants cuts left and right,
And global yields negative keep Treasuries tight;
When what to my wondering eyes should appear,
But neutral rates still anchored near 3% next year!
With a silver-haired chairman, so stern yet so quick,
I knew in a moment it must be St. Jay-Nick.
More measured than doves his projections they came,
And he whistled, and shouted, and called them by name:
"Now, GRADUAL! Now, PATIENT! Now, not too fast!
These cuts won't mean stimulus, brakes will still last!
The labor market's holding! Jobs still looking strong!
But restrictive policy - that would be wrong!"
He stepped to the mic, his intentions well-meant,
"The data's improving but we can't yet relent,
We'll stay vigilant through this policy descent,"
As brokers all prayed for yields under 4%.
He sprang to his podium, to his team gave a whistle,
And away they all flew like the down of a thistle.
But I heard him exclaim, ere he drove out of sight—
"0.75% in cuts for '25, and to all a good night!"
I thought it was nice to see all those tech CEOs work so hard to unify the country…
This should end well, too…
The Week Ahead
Last FOMC meeting of the year next week with markets expecting another 25bp rate cut, but markets will be more focused on the messaging about next year.
