Fed Watch – 10/11/2024

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

Hello, I’m Brian Beaulieu. This is October 11, 2024. Thank you for joining us for this edition of Fed Watch.

We’re coming close to not only the election but another Fed meeting so the tea leaves start to matter, perhaps arguably a little bit more. The CPI data came out this week and most of the media is saying that it was quiet so they’re really reading that as good news but it also means that they think the Federal Reserve can have some latitude to lower interest rates again. I’m just not sure that they’re going to. The next meeting is November 7th. The market says that there’s like an 82-83% probability that the Fed will lower interest rates another 25 basis points. I’m not ready to sign off on that for a couple of reasons.

One, core CPI numbers were not good. It was still showing a 3.3% rate of inflation. Shelter continues to drive an awful lot of that. Transportation services were up 8.5%. While the headline was good, 2.4% and 1/12 rate of change on the overall CPI is primarily because energy, commodity prices for energy that fuel, gasoline and not just gasoline but natural gas, etc., was down 15.3%. But electricity is still up and it’s at 3.7% on a 1/12 rate of change basis and that tends to be a ubiquitous consumption dollar type thing. A lot of our discretionary income goes and that direction. So the Fed could help us by lowering interest rates more, help those folks by lowering interest rates more. It depends on how much of a stickler they want to be about the inflation rate itself.

The PPI came out this morning, today being Friday, and it showed a good number also in that the overall PPI was up 1.8%, which is nice and low, although it is trending higher. And if you look at the trend, it’s not quite as much of a good news. And the pattern remains the same. The goods component, the finished goods component of the PPI, producer price index, is down 1.1%. But final demand, less food, energy, and trade services was up 3.2%. So I mean, the 50 basis point drop that we saw in September was pretty much a split vote by the FOMC. I’m not sure the devs are going to be able to win on these particular numbers.

Wholesale trade is also throwing off some mixed signals like Durville. Wholesale trade is running pretty good at 2 .2% growth rate, 3/12 average the last five months. 12/12 is lifting up. It’s at 1.3% and getting stronger. But Non-Durable Goods are weakening, as we speak, and the data trend failed to rise in the latest month. So again, there’s good news and bad news. You look at the export numbers, which is something that we look at, our export out of the United States in terms of goods, is a good number. It’s at 4.8%, which is solid. And that’s a positive leading indicator, by the way, for the U.S. economy, which is one of the reasons why we look at it. And it’s one of the clearest signals we have of things improving in 2025, things being the overall economy.

So the Fed could take that two ways. This is confirmation that they’re going to get this off landing so they can afford to lower interest rates. But they could also look at it and say, well, we don’t need to lower interest rates anymore because we’re already seeing some rise. Inflation is abating. And it’s for those reasons that I think they’re going to pass in November. It’s too close to the election. I don’t think they want to be seen as favoring one candidate over another. I think they may skip a beat because they went 50 basis points, which is neither here nor there really in the broader scheme of things. We continue to see some market pressures pushing interest rates generally lower in the first half of 2025.

I wrote a blog earlier this week. Go on our website and take a look at it. I think the bond market is telling us in pretty clear terms that they want the Fed to lower interest rates more. I think there is more coming in that regard. I just don’t know that it’s going to be in November. But the broader picture, the more important picture is we are going to get some more interest rate relief from the marketplace, we think, and from the Federal Reserve also.

So it’s tough to time the market, but if you can hold off on leveraging up, we think you’re still better off holding off until we get into 2025. Probably no later than 1Q early 2Q 2025, start snapping up those interest rates if you’re going to be a borrower. That’s the way we see it today, October 11th. Thank you for joining us for this edition of FedWatch.