Fed Watch – 3/22/2024

Hello, I am Brian Beaulieu. Thank you for joining me for the March 22, 2024 edition of Fed Watch. The Fed met earlier this week and not a surprise to anybody, they left interest rates alone. I thought it was more interesting that though, despite the good news that’s been coming out in terms of the economy and the strong jobs numbers, they still indicated that they intend to have three cuts in interest rates in the second half of this year, at least according to the dot plot and Powell’s own words. And he went on to say that even strong jobs data in and of itself wouldn’t dissuade them from lowering interest rates, and they think they’re going to see inflation come down enough where they will be able to lower those interest rates. This is the most encouraging he has sounded, and the most certain he has sounded about actually lowering those interest rates.

In the past, we’ve said maybe up to 150 basis point decline. From the Fed, that doesn’t seem likely. Now if they do three, it’ll probably be a quarter point at a time, so it’d be 75 bits. We may see other interest rates go down more than that with the Fed, just sort of giving guidance in terms of the direction, but we won’t see… it’s unlikely that we’re going to see a point or more decline from the Federal Reserve, we think anyways. There was good news that came out for the economy this week. Both single family housing starts came in with very good numbers in February, as did existing home sales. Existing home sales is still in what we call Phase A running below year ago levels, but the year-over-year comparison is getting less negative. And the January to February improvement in existing home sales was very strong, about three times the upper side of normal and for a single family housing starts that broke into Phase B.

So that 12 MMT is not only rising, but it’s rising above year ago levels now. Very good signs for the economy, given the normal lead times particularly for 2025, this is really, both are very good indications that the economy is going to have this softish landing here in 2024 and should be picking up some steam in 2025. So looks like we’re in this Goldilocks world where the economy is going to be okay. It’s going to be less than okay for some folks, as we’ve talked about, but overall, it will be good.

Service sector stronger or being stronger than the manufacturing side of things. One humorous note from Chairman Powell in his after meeting press conference, a reporter asked him, “You said you’re going to be lowering interest rates fairly soon. What does that mean?” Powell said, “Well, here at the Federal Reserve, when we use the words fairly soon, what we mean is fairly soon.” The man hasn’t lost his sense of humor and he was wearing a purple tie because we’re heading into Easter. So giving kudos for that too. So the economy is doing well, interest rates are coming down. We’re getting the best of both worlds. We don’t have to go through a hard landing on a broad scale basis to get some interest rate relief, and that is a relief. Thank you for watching this edition of Fed Watch. We’ll see you next week.