Fed Watch – 9/27/2024

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hello. Thank you for joining me for this September 27th, 2024 edition of Fed Watch. Lots of data came out this week and most of it is actually good news for the economy, which probably translates into we’re not going to get as much of an interest rate decline out of the Fed or the marketplace as some people would like to see or hoping to see, but it’s good.

It means that we’re going through this soft landing, at least as measured by the industrial side of the economy, a slowing rate of growth in GDP. So we’re getting some interest rate relief without having to go through a recession, which is a really good thing.

Taking a quick look at the data, some of the highlights where you may know that the PCE, the personal consumption expenditures price index came out and that was overall very good at a 2 .2% year over year increase for August.

The core number, which excludes food and fuel, was a little higher at 2 .7%, but it’s trending in the right direction. So the Fed’s going to be looking at that and thinking that’s a good sign. As far as the banks go, that’s going to be what they’re thinking also.

So no worries there. Personal consumption expenditures themselves are running at about a 5 .3% clip year over year. That’s plus or minus 3 tenths of a percentage point over the last eight months. So nice steady growth going on in personal consumption expenditures.

The only number that jumped out as initially not looking good was single -family building permits, but it actually was better than it looked. Ritz change tumbled in August, but that’s because last year was so abnormally exceptionally slow.

strong. When we look at the seasonality, we look at the month to month percent change in the data, it’s actually a milder than average seasonal decline. Nothing much to worry about there. And the other aspect of monetary policy besides interest rates, and there’s also the exchange rate, is money supply.

And the money supply, M2 is what we look at, deflated for inflation, has risen for the last three months. And three months in a row is a significant reversal in that particular series. It’s still 0 .5% below a year ago level, but it’s trending in the right direction.

It’s going to go into phase A with the next month. So not only are we getting some interest rate relief, we’re getting an injection of some liquidity into the system, which is good. No one’s going to declare this cycle to be over with yet.

The Fed is still going to be watching things very carefully, I’m sure. Because we’re real. Excluding what the government does in terms of injecting money into people’s accounts is up 3 .1% year over year.

That’s the lowest rate of rise we’ve seen in about nine months now. Could be better than that. You know, we’re in this general loginess in terms of incomes going up and with services and insurances. Continuing to cost a lot of money as shown by the CPI.

That means there’s some pinch on discretionary income. So we’re not going to declare victory yet. We would like to see these incomes going up a little bit faster. In fact, disposable personal income, which is after tax income, was up only 3 .1%.

It’s been relatively stable. It’s been trading in a plus or minus 0 .1 percentage point range for the last six months. It’s better than average, but we’re clearly we’ve come down off the mania of 2023.

We just don’t want to see that 3 .1% slip much lower because that’ll be putting some downward pressure on retail sales. And then we would have to get some more significant interest rate decline. So our outlook is, you know, we’re going to get some more declines out of the marketplace, probably out of the Federal Reserve too, although we’re not forecasting what the Federal Reserve is thinking.

But we’re in that part of the business cycle where we should be getting some additional interest rate relief. We continue to think sometime in the fourth quarter would be normal. The election timing screws that up a little bit.

Likely to see some additional decline in the marketplace and with the Fed, probably a 1Q2025. If we’re lucky, maybe even 2Q25. So if you’re thinking about leveraging up for the future, hold off. You know, 50 basis points, whether it’s a commercial rate or a mortgage rate is a big deal when it comes to the long term cost of what it is.

is you’re trying to do. So be patient. You’ll probably get some lower interest rates and then you’re going to lock and load those because after 2025, we see nothing but general interest rate rise because we see inflation coming back for 2026.

That’s the interest rate outlook update. That’s Fed Watch for today, September 27th. Thank you.