Fed Watch – 12/13/2024

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

Hello, I’m Brian Beaulieu. Thank you for joining us for this December 13, Friday, December 13 edition of FedWatch. What could go wrong, right? Two big data points came out today and some interesting little tidbits, but it looks like we’re going to get another rate decline in December. December 18 is when they are going to make their announcement. And it’s worthwhile looking at those data points though, as we head into December 18, because it’s the all items consumer price index is running at 2.7%. And that’s, I mean, that’s the cover if I was the Federal Reserve for lowering interest rates, because that’s close enough to the 2.5. That is a really sweet spot for the economy. Food was only up 2.4%. Energy was down 3.2%. So, you know, for your everyday person, those are good numbers. But core inflation remains at 3.3%. So that’s still above their comfort level. Shelter continues to be a problem. That’s rent and rental equivalency running 4.7%. Medical care running at 3.7%. And transportation services is the larger bucket, but what we’re really talking about is motor vehicle repair at 5.7% and motor vehicle insurance up 12.7%. Those are numbers that maybe the Fed’s acknowledging they can’t beat down. Those factors are beyond their control unless they want to create a whole lot of unemployment, which I don’t think they want to do. I don’t think anybody believes that they want to do that. That would be in violation of their dual mandate. One thing to note, and you’ll see it in this month’s ITR Trends Report, is that the 1/12 rate of change for the consumer price index edged up for the second consecutive month. It’s still technically in phase C decline, but it looks like that’s wrapping up, and we’re shifting into the new phase B, or at best a flat period. This is about as good as it’s going to get in terms of the inflation rate, in other words. It’s the way that it is looking to us. For those of you that look at the details of the CPI, you’ll see that the not-seasonally-adjusted monthly number was down from the prior month. That means nothing. It’s the rate of change that really matters. The decline was perfectly normal in the not-seasonally-adjusted data. So don’t read too much into that. The PPI, producer price index, when we look at the final demand producer price index, tells a different story. That is up to 3.0%. In September it was 2.0, in October it was 2.6, now it’s 3.0. So that is beginning to climb already and it’s running above the CPI. This is a harbinger of more inflation to come. I don’t think it’s going to make the Fed back off of their decline in December, but I think it is putting a time limit on how long we can expect these declines. And for us that’s been mid 2025 for quite some time. The core PPI, so that’s backing out food and energy, is at 3.5 percent higher than the consumer price index core of 3.3. Again that’s a tell that this is about as good as it’s going to be getting. And if the producer price index is going up, again it’s a leading indicator to what to expect for the consumer price index. Yet with all that, Wall Street has got a 96.5 percent probability that the Fed is going to lower interest rates and other 25 basis points in December. And for those of you who want lower interest rates, sure hope you’re right. I hope they’re right. This is a little tidbit I wanted you to notice though. While the street is building in a decline, a 96.5 percent probability of decline, 25 basis points again. You look at the 10-year bond yield and it’s continuing to rise. As of this morning it was up to 4.37 percent. It is not giving the indication of decline that Wall Street thinks is happening in the short-term rate, which is the Fed funds rate. That’s another indication that there isn’t any big decline in interest rates, inflation or interest rates coming for that matter. And that you should be thinking strategically how you’re going to play the next round of inflation that we have been talking about. December 17th, ITR, my brother and I, Alan, we’re going to be hosting an executive series webinar. We’re going to be talking about our 10-year outlook for the 10-year government bond yield. We’re going to be looking at our 10-year outlook for mortgage rates, the stock market, besides just the economy, and how you can build wealth over the next 10 years, most effectively in our opinion. So, there’s a lot going on. I think pay attention to what the marketplace is saying, more than what the Federal Reserve is doing, and you’ll have a better perspective of the next 18 to 24 months. Make your move when the Fed funds rate comes down to its lowest level, again, maybe mid-2025, but then lock and load at that particular time because rates are likely going to be going higher. Thank you for watching this edition of Fed Watch. We appreciate you and we will see you next Friday.