FOMC 2024 0731

The Federal Open Market Committee announcement:

FOMC 20240731

Yawn. The big story isn’t even any concrete policy move, but of tipping whether the FOMC plans one for September. In which case it would have effectively decided that the data that emerge over the next several weeks are irrelevant. Or that if you listen to what comes out of the other side of its mouth, it is data dependent.

I continue to hold that speculation about future Fed policy is media propaganda best ignored by investors. Better to consult the Treasury yield curve, where the highly efficient thirty trillion dollar bond market has already baked in everything knowable into actual rates and yields. If you want to know what really happened today, check where the one year yield closes. Just since the beginning of this month, it’s cut one year rates by 32 bp.

No doubt the Fed influences Treasury yields, but the objective fact is that wherever the Fed is going, the Treasury market gets there first.

10 thoughts on “FOMC 2024 0731

  1. Finster says:

    Powell, to his credit, is pushing back on media speculation in his post announcement press conference, insisting that no decision has been made about September and that it will be made at the time based on the data available at the time. What a concept.

    The press corps continues to doggedly try to extract the blood of nonexistent information from the Powell turnip. The theory seems to be he knows something but isn’t telling. Believe him … he knows nothing.

    The closest he’s come to tipping September is that there “could” be a cut on the table. Well duh. But the Wall Street media are running with it, carpet bombing readers and listeners with the suggestion, subliminal or otherwise.

    Powell isn’t blameless though, having started to talk openly of prospective rate cuts all the way back in December. This encouraged a wave of speculation leading to a wave of resurgent inflation. Possibly Mr Powell has learned something from his past mistakes.

  2. Finster says:

    Meanwhile, what’s happening to actual inflation? And I hope by now readers realize that that is not to be confused with the CPI at Financology.

    Rather the capital markets are a far more accurate and timely indicator. Don’t take my word for it … just ask yourself how it could be that one basket of securities can gain 20% in purchasing power over the course of a few months without another basket losing a like amount.

    The aforesaid first and second baskets for instance being stocks and currencies.

    Of course there are other securities on this big blue marble besides stocks and dollars, but like stocks, currencies tend to move together. We sure haven’t seen anything like an aggregate plunge of 20% in other currencies versus the dollar. Even if they had, it would still not explain the relative movement between stocks and dollars. And bonds, like stocks, have also been gaining on currencies.

    And the dollar oddly enough has also lost about 20% over the last year in terms of that multimillenium stalwart, gold.

    We’ve long discussed the lead-lag relationship between actual inflation and its eventual effect on consumer prices. But there is a magnitude problem as well. So who (outside the corporate media) believe the CPI even accurately tracks consumer prices?

    Not the good folks at Chapwood. Not coindentally, they are finding considerably more inflation than their counterparts at the Bureau of Labor Statistics.

    The Chapwood Index

  3. Finster says:

    “If you want to know what really happened today, check where the one year yield closes.”

    And the verdict is in. The one year rate was cut by 5 bp, extending the existing trend.

    The Wall Street Journal headline:

    Fed Meeting Today: Stocks Rally After Fed Leaves Door Open to Lower Interest Rates

    The objective fact:

    Stocks rose – in dollar terms – by 1.56%.
    Gold rose – in dollar terms – by 1.78%.

    So stocks fell – in gold terms – by 0.22%.

    The exercise of assessing what actually moved most is left to the reader.

    Hint:

    It was neither gold nor stocks.
    And it wasn’t up.

    1. Finster says:

      Could they both be right? Not beyond the pale … the lagging nature of CPI (including the ShadowStats version) is telling us where we’ve been. Truflation looks like a more current, high-frequency indicator, like the FDI.

      I haven’t run the full FDI lately but the main inputs it relies on point to a deflationary jag. Copper prices peaked 0521 and have been all downhill since. Energy prices have been in retreat. SPGSCI has been putting in lower highs and lower lows since April. The stock market is taking gas. The bond market has been slashing rates.

      Added all up, the dollar is appreciating in real terms in real time capital markets. I’m not ready to cry 2008, but it has taken on a bit of that flavor.

      If so, consumer prices will follow. The good news is we could easily see sub-2% CPI prints before the end of the year. The bad news is the policy response will ensure it doesn’t last.

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