FOMC 2025 0507

Posted on by Finster Posted in Federal Reserve

The Fed Announces

The Federal Open Market Committee announcement:

FOMC 20250507

As usual, the meaningful action is in the bond market, a far more reliable indicator of interest rates. There, the trend has been generally lower since around January 10. As of Friday May 2, the one year rate was 4.00% and the ten year 4.33%.

The area where fed funds has the most influence is in the shorter maturities. The one month rate is 4.38% and the three month 4.33%. That these are among the highest rates out to ten years indicates fed funds is tight. The yield curve is inverted between 6 months and 5 years at 4.26% versus 3.92%.

Daily Treasury Par Yield Curve Rates

30 thoughts on “FOMC 2025 0507”

  1. Reply
    Finster says:

    The Fed continues to confuse consumer prices with inflation. As we’ve written before, tariffs could increase consumer prices, but so do sales taxes, and neither have anything to do with inflation. It’s far from settled where tariffs will end up, but a one time step up in consumer prices, even if it were counted as inflation, would still pale next to the Fed’s own compounding of inflation just since 2020.

  2. Reply
    mega says:

    Much of a muchness……………..
    Meantime Elon is not doing well………..getting killed in Blighty 😉

  6. Reply
    mega says:

    Early days but i cant see why its “So great”………….taxes that were not there before are now “Only” 10%.

    1. Reply
      Finster says:

      The marginal change drives the marginal market movement. It’s not a good versus bad value judgment, but mostly what boils down to a corporate tax cut, relative to where it was before. This shifts buying interest towards stocks. It’s hit gold prices because money is tight and there’s not enough right now to levitate both stocks and gold.

      It can influence where they go next. There is the potential for more trade deals in the coming weeks, which could further incrementally shift buying interest toward stocks. This is near term consideration, though; the Fed will eventually ease. I can’t emphasize this enough … the larger force moving gold has little to do with the trade headlines … it’s spiraling government debt and there’s no plan in sight to fix it.

      This, along with Thorson’s technical analysis, is why I think the odds are that gold will trade between $2800-$3000 and then head much higher.

      Far as the 10% tariff goes, Trump has been clear that’s the global baseline. It’s economically justified as explained in Free Trade Begins At Home. If the media were expecting a “trade deal” to mean zero tariffs, it’s the media’s error, not Trump’s.

      It’s significant that this first of what’s likely to be many trade deals is US-UK. Trump has historically said he views the US-UK relationship as a top priority, and he’s walking the talk.

  10. Reply
    mega says:

    Mega’s dispatch from England:- Convenient conflict
    Just when Trump & his Western “Bro’s” are totally on their back foot, suddenly a God send moment arrives…………a nice war between Pakistan & India.

    Some time ago i noticed that the West began interfering with Pakistan internal politics namely the arrest of Khan. I knew that they would soon deploy Pakistan as away of applying pressure on India & bring it into conflict with China.

    They also hope to cause troubles for Russia, India & Russia have some history together. In 1971 a war began between India & Pakistan. 1st blood went to Pakistan, but India began to find its feet & alarmed by this a Western taskforce sailed to cut off & control the seas around the area of conflict.

    This task force was lead by the British with HMS Hermes (Carrier) as flag ship…………..only to find the Soviet navy got there 1st! The REDS made it VERY clear what was about to happen & the limey commander sent out a message “Sorry, we too late”.

    India was very grateful & during the attempt to stop Russian oil/Gas trade they drove a horse cart though Nato attempts. I recall the top Limey diplomats trying to threaten India, India told them to piss off………….i loved to have seen the look on those Limey bastards faces when their former slaves gave it to them!

    I can smell the stench of Western intel on this…….we can only hope that Putin as told India & he has a plan

  11. Reply
    mega says:

    Mega’s dispatch from England:- Convenient conflict/2
    Well, well with Ukraine (NATO) on its back foot & Russia about to launch a major offensive blow the West wants a “Time out”…………..WTF, do they think this is some sort of game?

    I can see how Russia will take the bottom half of Ukraine, but how to hold it?
    Nato will send raiding parties into this area & a long drawn out conflict will begin.
    If NATO club together they can fund this sort of thing at little cost……..how does Russia strike back?

    Mike

  12. Reply
    mega says:

    Ukraine update:- Deal on?
    Is a peace deal underway?
    Give that the Euro-trash have suddenly DEMANDED that Russia agree to a 30 day “Time out” Putin has replied that he is quite willing to return to the table in Turkey peace talks were they where before BoJo the clown (Boris Johnson) formal Limey PM sabotaged them in 2022.

    Next 24 hours might see some moment……..enough political cover for the unwashed scum to say Russia backed down.
    Mike

  13. Reply
    mega says:

    Ah……………………..yyeess………….When Blighty tried to build a EV
    https://www.youtube.com/watch?v=l5N937V8ZOw&t=54s
    Strangely…….. no one bought it, because they WOULD buy it……which is a shame as Blighty could have become the world centre for organ spare parts.
    & if you think this is just some crack head idea, let me assure you Sinclair was put up to it by the then powers to be……rather than improve the road network just get the Plebs to ride these!
    Mike

  19. Reply
    mega says:

    https://www.zerohedge.com/geopolitical/trump-praises-young-attractive-president-sharaa-founder-al-qaeda-syria-qatar-visit

    Math not his strong point?
    What the World is unaware of is the coming Energy revolution.
    A MEGA change is due to happen by the end of this year, the mass production of VERY energy dense Battery tec.

    Up to now most battery type are called LFP, its the cheap battery as it does without those nasty rare earth & other stuff at the expensive end of the Period table. The battery could only make 150 ish wh/kg, Expensive top end Tesla battery made 260 ish.

    We it seems that by throwing in a pitch magnesium & a few other tricks we going to see an LFP battery with 300 wh/kg ish!

    https://electrek.co/2024/10/14/hyundai-develop-industry-leading-300wh-kg-lfp-ev-batteries/

    If this pans out then the cost of battery pack will fall to a point where its cheaper than Gas. Also the weight of the pack will fall as well, making for much lighter cars that require less power to propel them to speed.

    Big news however is LFP battery can do a lot of cycles charging wise. I heard 5-8 thousand thus they would be ideal for V2G or car to home…………..charge up your EV at night using cheap over night power…….use it doing the day after your done with the car.

    Sum up:-
    Cheap cars that will require NO petrol (Gas) & limited amounts of Natural Gas for power stations. On a National level you don’t need that Black stuff at lest for cars & your balance of payments improve.

  21. Reply
    mega says:

    Angry bond markets taught Donald Trump a lesson over tariffs. They are now itching to teach him a second and more painful lesson over runaway debt and the abuse of fiscal privilege.

    The US has a structural budget deficit of 7pc of GDP at the top of the cycle, at a time of full employment. This level implies a double-digit blow-out and a compound debt trap in the next recession.

    “We’re convinced that we’re immortals, and we can just do whatever we want,” says Harvard professor Ken Rogoff, co-author of This Time is Different: Eight Centuries of Financial Folly.

    He says a sudden and sustained rise in real interest rates – not nominal rates – is what brings down hedonist states through history, usually after a long era of bewitchingly cheap capital.

    It is the retribution tale of the mid-2020s. The Federal Reserve’s measure of 10-year real rates was pinned to the floor over the post-Lehman decade. It was negative five years ago.

    It has been closer to 2pc since Covid violently reset the rules of the international financial system. This jump has played particular havoc with the US debt trajectory.

  22. Reply
    mega says:

    The Bank of America has pencilled in deficits of $2 trillion (£1.5 trillion) this fiscal year, $2.2 trillion in 2026, and $2.3 trillion in 2027, even if all goes well. Money raised from tariffs – $300bn at best, assuming there is no retaliation or offsetting damage – does not even slow the fiscal degradation.

    These are gargantuan demands on global capital markets. The US treasury must refinance $7 trillion of debt this year alone. “How did you go bankrupt?” goes the immortal line from Ernest Hemingway: “Two ways. Gradually, then suddenly.”

    So what do Republicans on the House ways and means committee do at this treacherous moment? They feast on a “big beautiful bill” that adds a putative $3.8 trillion to the debt mountain, but is in reality worse, once you adjust for sunset clauses and evasive gimmicks.

    “The 10-year cost of the tax cuts is likely over $5 trillion,” said Matthew Aks, from Evercore ISI.

    The American people cannot fund such debt issuance. Fed data shows that the net national savings rate has dropped from an average of 11pc of GDP in post-war era, to 7pc in the late 20th century, to 3pc over the 2010s, to 0.6pc today with the final breathtaking adventurism of Joe Biden and Donald Trump, the Tweedledum and Tweedledee of fiscal insouciance.

    It is this excess consumption that sucks in imports and causes America’s chronic trade deficits. Trump feigns not to understand. There is more advantage in railing at foreigners, or so he thinks.

  23. Reply
    mega says:

    Nothing is being done about the real cause of America’s ruin: middle-class welfare. Why is the US still allowing a tax deduction on mortgages up to $750,000? The IMF says the projected long-term rise in spending on federal health schemes (mostly Medicare) and pensions is higher than for any other developed economy as a share of GDP.

    Elon Musk’s Doge cuts are mostly an ideological purge masquerading as an efficiency drive. Trump has his own Christmas tree of crowd-pleasers: no taxes on tips and overtime; a fresh bung for pensioners; and a tax deduction (another one) on car loans.

    This has the makings of a Liz Truss episode, without the quick rectification made possible by Tory ruthlessness and Britain’s parliamentary system.

    Hedge funds are honing in on stress emerging in the US Treasury market. For aficionados, the 10-year “break-even rate” spiked to 2.37pc on Wednesday. The 5y/5y forward swaps (don’t ask) are flashing amber warnings. Levels are nearing no-go lines set by Scott Bessent, Trump’s treasury secretary.

    He has the “Bessent Bond Put” up his sleeve. He can nudge banks into buying more treasury debt by raising the “supplemental leverage ratio” in collusion with Fed, now that Trump has installed his acolyte as Fed vice-chairman in charge of supervision.

    He can rotate debt issuance to short-term bills, but that is playing with fire. Average debt maturity is already down to 5.9 years, compared to 14.4 years for the UK. The lower the maturity, the faster the feed-through into debt dynamics. Bessent attacked Janet Yellen for doing exactly that.

    Global bond vigilantes are not stupid. They can see that Trump is trying to bully the Fed’s Jerome Powell into slashing rates and that he will stack the Fed board over time. He will pressure the institution to soak up the debt, and inflation be damned.

  24. Reply
    mega says:

    The clear risk is a stealth default via debasement, which the Fed already did once to pay for Covid and Bidenomics, tolerated only because it was (arguably) an innocent monetary error rather than deliberate theft.

    Prof Rogoff says that episode was an amuse bouche. He fears inflation could reach 20pc to 25pc in the next wave, which may not be far away. No bondholder waits for that. Once in motion it becomes self-fulfilling.

    The vigilantes also know that Stephen Miran, head of the White House economic council, has talked of an outright default by means of a forced debt swap or a “fee” on foreign holders of US treasuries, on the alleged grounds that America’s foes have been buying US debt to suppress their currencies and snatch export share.

    They have done no such thing for over a decade but never mind. The point is that this White House is already eyeing expropriation of your pension pot and mine.

    An administration that has already shown its enthusiasm for smashing the global furniture on everything else – trade, alliances, borders, and the climate – would not hesitate to execute the Miran plan once it needs money.

    Even before the beautiful Maga bill, Scope Ratings warned that US federal debt would reach 133pc of GDP by 2030, up from 99pc before Trump 1.0. It could rocket quickly from there to 150pc if interest rates misbehave.

    Japan has muddled through with a higher debt ratio, but that tells America nothing. The Japanese people are the world’s biggest external creditors. They have a net international investment position (NIIP) near 90pc of GDP.

    The US is the world’s biggest external debtor by far, with an NIIP of minus 90pc of GDP and net liabilities of $26 trillion.

  25. Reply
    mega says:

    Larry Summers, the former US treasury secretary, told the Bulwark that markets are no longer treating America as a “bastion” economy. There are days when the dollar falls hard even though US bond yields are rising. Investors are buying gold instead of US treasuries as a safe haven. “When that happens, it’s a sign that people have stopped trusting you,” he said.

    Summers compared the picture to Europe in 1914. The region had become brittle. Crises that had been contained a decade earlier were becoming harder to control. The margin of safety was wafer-thin.

    “We’ve started making huge-scale errors in terms of our attitude towards the rest of the world … Our potential hostility to investors in our currency,” he said.

    Trump is behaving as if he is master of events, and nobody else has agency. Did he not calculate the risk that Xi Jinping and Vladimir Putin would call his bluff, and leave him looking like a floundering amateur?

    Does he think that foreign investors will wait to be robbed? He requires a constant inflow of fresh global capital to refinance America’s $36 trillion debt and to fund new debt issuance.

    What happens if inflows dry up? What happens after that if foreigners start to withdraw their $14.2 trillion holdings of US debt securities, and $17 trillion of US equities?

    Summers says the denouement could come faster than we think – “front-loaded”, in his words – and this could set off a self-feeding spiral as markets rush to deleverage. “Right now, I think we are in a moment of very substantial risk,” he said.

    If Trump wants the world to keep buying his debt, he might be advised to stop punching the world in the face.

    1. Reply
      Finster says:

      It’s a shell game. Pretend that a “strong dollar” is purely an international policy issue completely unrelated to inflationary monetary policy. Policy regarding “the dollar” is Treasury territory while the Fed prints them by the trillions? Bollocks.

      You can cut deals till you’re blue in the face but the strength of the dollar is ultimately monetary policy.

      That notion that the value of the dollar in international trade is separate from the value of the dollar in domestic trade is absurd. They will eventually converge.

      Bottom line: The Fed issues the dollar and makes dollar policy.

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