Federal Open Market Committee says inflation remains somewhat elevated and the economic outlook is increasingly uncertain, leaves DFF between 4.25 and 4.5, i.e. 4.33

 

Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. ...

More.

US Treasury yields are steepening and by duration are normalizing

 This is actually a good thing.

Longer dated securities should pay more than shorter, unlike most of 2024 when Bills paid far more.

Bills yields on average on Friday match the Daily Federal Funds rate exactly, falling in tandem with it in 2024 from the 5.33 range to 4.33 now. They've been pretty stable at this level for five weeks now.

The fall in Bills yields actually ran in front of the Fed decision to make the first rate cut in September by many months.

The fall commenced after May when the Fed announced it would institute a slight decrease to its tighter money policy through balance sheet operations involving UST beginning in June.

Bills yields fell hard for four months into September even as core inflation year over year remained flat at 2.7% over the period. Investors locked in higher but rapidly disappearing return.

Yields on Notes and Bonds also plunged, but against most predictions they rebounded in the face of the Fed rate cuts, which is quite amusing. Longs got their lunch eaten.

The simplest explanation is that longer dated securities anticipate more inflation, and the Fed simply pushes on a string. Bond vigilantes demanded more return for the rising risk.

People who didn't appreciate fixed income turning into a casino like the stock market hid out in cash and did just fine. VMRXX returned 5.24% last year.

There are over $6 trillion in T-bills outstanding at the end of 2024 vs. $2 trillion to start 2018, out of a total of approximately $28 trillion total UST outstanding.

Unfortunately for buyers of houses and cars, long money is going to cost you more, as yields on Notes and Bonds climb again in anticipation of recalcitrant inflation and increased deficit spending under Trump.

The average four year new auto loan was 9.36% and the 30-year mortgage 6.93% last week.

 

CNBC fact-checks Joe Biden, now that it doesn't matter

 But the article name-checks Donald Trump five times because he's an opponent of Fed decisions.

There's a whole movement out there that wants to End the Fed, composed of Republicans, Democrats, and libertarians, which CNBC is loathe to mention.

Many of them argue that the US 2-year Treasury Note should be the benchmark for the Federal Funds Effective Rate, not the whim of the Fed Chair and the Federal Open Market Committee, who are un-elected, well-connected, and VERY WELL PAID elites who watch out primarily for the interests of the banksters.

For example, despite the disastrous Zero Interest Rate Policy post-Great Recession, DGS2 resisted it and outran DFF throughout the period under Obama and Trump, and anticipated the recent inflationary outburst by starting to rise in the spring of 2021, a full year before the Fed moved to "combat inflation" by raising the funds rate in the spring of 2022. 

Similarly DGS2 also started to fall in November of 2023 despite no change to Fed policy, anticipating the recent decline of inflation rates by almost a year.

The role of the US Treasury Secretary, AS MUCH A CREATURE of the Executive as the Fed Chair, is also huge for interest rates because the Secretary decides how to divvy up the debt securities for auction by duration.

Biden's Treasury Secretary Janet Yellen has been in the news for driving up the issuance in T-bills to 22% when 15% has been customary, which has contributed to longer rates falling and stocks rising, just in time for the election.

But the costs of this have been dramatic, financing deficit spending at the highest rates and driving interest payments on the debt to the third spot in the budget, behind only Social Security and Medicare.

Fixed it for ya: Stonks continue to laugh at puny Fed rate hikes as interest rate arbitrage is defacto Fed policy

The stock market is liking Fed rate hikes this year, unlike in the past

Arbitrage.

This year's drinking word.

DFF: 1.58%.

CPIAUCNS: 9.1%.

Hey, watch me borrow cheap, buy a trailer park, and raise the rents and fees on little old ladies on Social Security.

We're goin' to Vegas, baby!

LOL Drudge, a one per cent Fed Funds rate hike from here would take it from 1.58 to 1.5958, silly

 A 100 basis point rise, as in the story, would take it to 2.58, an increase of 63%, which is the draconian kind of thing Cathie Wood likes to dramatize.

But no one understands draconian. In a world of superlatives where everything is awesome, the smallest changes are blown all out of proportion.

Draconian would be raising the rate at least to the level of inflation, now 9.1% year over year (not seasonally adjusted).

Actual draconian is necessary.

But these are not serious people. None of them.