Fed Watch – 10/18/2024

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

Some more September data came out, and frankly, it’s not bad, but it’s not good. And there’s an overlaying mist, if you will, about the data, because remember, there’s something called Hurricane Helene came through the southeastern part of the United States. It wasn’t big enough to really disrupt the national numbers. And if the numbers had been worse, I would probably say there’s more underlying concern that should be listened to. But taken like US Industrial Production that came up. The 1/12 rate of change decreased to minus 0.5. It is in phase D. The 12/12 rate of change is flat at minus 0.2. It’s not much different. It is within our forecast range. So we don’t really see a particular reason to get all worked up.

Manufacturing is as plodding along as it has been over the last several months. It’s 1/12 is at minus 0.2 percent. Utilities are weak, but at least they’re in positive territory. What really dragged down US Industrial Production was the mining sector. That 1/12 rate of change is down 2.2 percent. The 12/12 curve is in phase D also. So that’s the weakness we’re seeing is in mining more than any brief fresh or new weakness in manufacturing. So that’s relative good news.

Retail sales wasn’t great. 3/12 rate of change slipped into negative, well phase C at 2.3 percent. We had some weakness. and the one to already change as well. It’s the month to month changes and the seasonal rising trend, it looks an awful lot like 2013, 2012, that era. So it’s weaker, it’s appreciably weaker than we would like it to see, but we didn’t see a recession in ’12 and ’13 either. We just saw a slow retail sales growth. It remains sluggish, but retail sales never tipped into recession and neither did GDP.

Automobile retail sales remains weak. It was at the 3/12 at minus 0 .5%, that was in D. But even the negative numbers aren’t grossly negative. They’re just flirting with slightly up, slightly down compared to a year ago. General merchandise retail sales, that seasonal rising trend is normal. It’s a little off from the last three years, but that’s because we’re running through all that stimulus money and demand is normalizing. And I think that’s part of what we’re experiencing in all these numbers, that it’s like lukewarm water when you’re really thirsty. It’s not quite satisfying the need, but it’s not really a problem at the same time.

The marketplace is assuming, based on Wall Street and futures, about a 90% probability that the Fed’s going to lower interest rates on November 7, either 25 or 50 basis points. It seems to be split between those two camps. Not so sure. I used AI on this to save me some time, but the numbers make sense. They’re consistent with my memory of the last 40 years. Going back to 1950, the Fed lowers interest rates in November of an election cycle, five to 10% of the time. And those times have been like in recent memory, 2008, where we were clearly confronted with much more dire economic circumstances than what we are seeing today. It’s just not that bad out there that the Fed has to run the risk of seemingly choosing sides. They go to great lengths not to do that. Not to say that they won’t. What I’m trying to get across to you is, if they don’t lower interest rates in November, it’s because of the election cycle and it would be odd for them to do so. If I know that, others know that as well. If they don’t do it in November, we’ll likely get some more movement in the marketplace and maybe even out of the Fed at the end of this year, and certainly some more in 1Q, 2025.

So stay on the lookout for some favorable movement in interest rates. And when we think we’re at the low, we’ll let you know, and that’ll be time to lock and load for the rising trend. That’s how we see the economy and interest rates going in the near term, longer term, we still see that mountain of rise.

All right, folks, thanks for listening. On behalf of all of us at ITR Economics, and in particular, Joy Beachy and myself, thanks for listening.