The Federal Reserve Is Not Going To Lower Rates As Much As They Predicted They Would

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In September, the Federal Reserve lowered interest rates by 50 basis points and its officials predicted more rate cuts through this year and next year too, to the point where they would likely take rates below 4% all the way down towards 3%, while predicting that the economy would grow and grow. The rate cut, and those predictions, excited stock market bulls into buying more stocks into the election.

Stock market investors got anxious in August when the market dip, but the rate cut rally took all of their anxiety away.

However, the Federal Reserve is not going to be able to cut rates next year like they predicted they would.

The reason why is that bond investors have sold long-term Treasury bonds, to cause their yields to actually go up! This has caused people’s mortgage rates and credit card interest rates to actually go up too even though the Fed lowered rates! Now the two year Treasury bond yield is trading right above 4%, forecasting rate cuts ending up in the 4% - 4 1/2% zone.

Remember when they predicted that inflation was “transitory.”

The last CPI report made it look like the inflation rate bottomed out too and we are facing a growing debt/GDP.

It’s a mess, but right now no one cares, because the stock market seems to be ok.

What you are looking at above are the Fed Fund futures, showing you that traders are now pricing in only a 47% chance of a rate cut in January. They are betting that a rate cut will come in November and then another one in December, but now only have a 47% chance that one will happen in January.

For more rate cuts to happen beyond this year will require a recession with bad unemployment numbers.

Otherwise it ain’t happening.

Probably the Fed officials just predicted that they would cut like crazy next year in order to get people excited about buying stocks before the election.

What is worse that they put out propaganda or that they actually believe their crazy predictions?

One reason why the bonds are trading like this is because of problem that Paul Tudor Jones talked about this week on CNBC - the acceleration coming for US government debt growth. The link for that is in the story below.