I also found interesting Powell’s discussion about the neutral rate (2.9% according to the dot plot) being significantly higher than in the past (when asked if the Fed were on their way to lower rates back to zero like in 2009-2016 or 2020-2022).
Along with keeping up quantitative tightening, I think it balanced a bit the bigger than expected rate drop.
Rate cut expectations are falling. They were hoping for 2 cuts in Nov, now it’s basically 1 and maybe none. So probably 1 in Nov and 1 in Dec at this point.
Late today, futures traders build in an 86% chance rates will fall 25 basis points at the FOMC meeting on November 6–7, based on the CME FedWatch Tool. There’s a 14% chance of no change from current rates. That’s quite a shift from a week ago when investors saw a one in three chance of a 50-basis-point cut next month. The market still builds in high odds of another 25-basis-point rate trim in December.
Anyone know of a betting market on Fed actions?
The numbers in that chart are derived from prime rate futures and options contracts. CME is the betting market.
I would prefer a more direct cut/stand/raise market.
CPI out yesterday for Sept came in hot, 2.4% annualized but higher than expected/hoped, as well as with higher unemployment indicators that might give the Fed pause.
Market sold off on less likely rate cuts, still expecting one for Nov but maybe fewer / slower down the road if these inflationary numbers hold up.
Paul Tutor Jones is a super successful and smart trader, hedge fund manager, and multi billionaire. This is a 10min interview with him on our debt and inflation.
He also lays out our massive debt problems and how much rise in taxes or cuts in spending it would take just to stabilize things - and it’s not pretty at all.
Well worth thinking about for your portfolio.
Hey, I’m with him on commodities and gold, but will let him cover the risk on the rest. I don’t have the time to listen to his logic on the Nasdaq long, but trust that he understands something that I don’t. I’ve gone short QQQ, finding long term PUTS to be, sadly, outrageously expensive.
Short-term, I don’t see any reason to expect this trend to get worse before it gets better honestly. Even conservatives have flushed fiscal conservatism down the drain.
Which is why, I suspect, gold is up 30+ % in the last 11+ months. TBH, those numbers are from a less than certain memory, but it sounds right … in my head.
Interesting to see how little central banks can do to impact inflation in times of structural inflationary forces. Russia has inflation of around 13% despite central bank setting interest rates at over 21% (likely soon to be 23%).
I wonder how effective the Fed ramping up interest rates would be at curbing systemic US inflation generated by runaway budget deficits/debt or unskilled labor shortages (after deportations say).
It’s hard to have inflation if you don’t have most of the money supply in the country. Putin can only build so many castles. Also the bourgeois don’t have as much they can spend on either …
I agree that banks cannot do very much. It takes the national government to slash spending. On the other hand if there’s a will, it can happen.
https://www.reuters.com/world/americas/can-milei-defuse-argentinas-economic-time-bomb-2024-11-04/
Summary
Milei on track for zero fiscal deficit, has slashed spending
Central bank adds $19 billion to foreign currency reserves
Inflation slows from 25% to 3.5% monthly, interest rates drop
How does unskilled labor shortage lead to inflation? Would it be because employers would have to pay a bit more to attract new workers? Given the scale, I doubt that such potential cost increase would be significant enough to register on the inflation radar.
Deportations would lead to lower productivity and lower spending, which are deflationary, no? Of course that also leads to fewer taxes collected, which puts pressure on the debt/deficit, but may be counter-balanced by less spending on taking care of the dearly deported.
Pretty much. In case of Russia, soldiers are paid 3-4 times as much as a standard unskilled worker. Enlisting comes with huge sign-up bonuses. If they get killed, their families receive massive payouts. To compete, employers need to increase their wages so labor costs increased significantly and the costs are passed to customers.
I think deportation would mean that whatever the illegals are producing currently is in shorter supply. Think produce harvests. Producers will either have to hire workers at higher wages to replace illegal workers or harvest less of their crops. Both of which result in higher produce prices. Extend the same thinking to janitors, construction workers, etc. It’s a bit of a shell game too. If unskilled workers in some sectors get paid more, other sectors will feel the domino effect as well. Ultimately, lower unskilled worker supply + same demand = inflation.
Only caveat would be if servicing illegals is a huge cost. Considering they are not entitled to any social benefits - in most states that don’t subsidize replacements -, I don’t think that’s enough to balance the inflationary costs of shrinking the worker pool.
Illegal migrants are a huge cost.
NYC over a billion a year, and they only had a few 100k ppl
Without policy changes, NYC could potentially spend $12 billion on asylum seekers over next three fiscal years
MA over $1B/ year, 300-400k ppl
In addition to housing, some other costs taxpayers will have to cover include schooling, social services, medical care, and public safety. These migrants are eligible for certain welfare programs in Massachusetts like food stamps provided by the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance to Needy Families (TANF), Medicaid, and other public services. Migrants can access these programs even while the federal government prohibits access to such programs.
Call it $1B/250k illegals / year, and Biden let in 3-4M new ones under his term that we noticed. So call that a $10-15B/year in savings. Heck, you could build a wall for that 
There is a legal visa program for temporal agricultural workers. The H-2A visa program allows U.S. employers to hire foreign workers for temporary or seasonal agricultural jobs.
Who can apply?
U.S. employers, agents, or associations of agricultural producers can file a petition on behalf of a prospective worker
What jobs qualify?
The job must be temporary or seasonal, and the employer must demonstrate that there aren’t enough U.S. workers available.
So presumably a shortage in agricultural arms can be alleviated with this visa. No doubt farmers currently depending on undocumented workers would request this visa for them.
There wouldnt be as much unskilled labor to produce widgets, no matter how much employers offered. So less supply will raise the price of those widgets until demand tapers off as well.
Sure, but I’m guessing unskilled labor produces cheap widgets in the first place, so a small increase in price of the cheap widget and is unlikely to cause inflation.
