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I have been arguing for some time that it might be a while before the Fed gets around to cutting interest rates; heck, I even opined it’s possible they could bump them higher again if they get a couple months of minor increases in inflation indexes, if only to “send a message” and try to cool things off.

Never mind that the 2% “target” is one which has rarely been achieved in real life, with the exception of the past few years, an anomalous period in interest rate history for sure.

Anyway, Barron’s says maybe no cuts this year, owing to various factors, not the least of which is the upcoming elections when the Fed is loathe to do anything lest it look “political”, but there’s also the real world data that shows inflation slowing, but still not anywhere near the mythical 2% target.

https://www.barrons.com/articles/fed-powell-intere...

The Fed Won’t Cut Rates This Year

Federal Reserve Chairman Jerome Powell and his team had hoped to lower rates in 2024. But sticky inflation, a strong economy, and calendar quirks are thwarting their plans.

 The Federal Reserve isn’t likely to lower interest rates in 2024.  
Elevated inflation, a resilient economy, and a still-strong, if softening 
labor market argue against the need for easing monetary policy, especially 
as these conditions are expected to persist through year end.

The Federal Reserve isn’t likely to lower interest rates in 2024.  
Elevated inflation, a resilient economy, and a still-strong, if softening 
labor market argue against the need for easing monetary policy, especially 
as these conditions are expected to persist through year end.

Nor is an increase in interest rates seriously in the cards. Despite an 
inflation scare earlier in the year, the rate of price growth continues 
to move, slowly, in the right direction, heading toward the Fed’s 
2% annual target. That means the central bank can keep its federal-funds 
rate target, for now, in the range of 5.25% to 5.50%, where it has been 
since July 2023—and the stock market might not mind.

Think of the Fed’s policy stance as higher for longer than almost 
anyone anticipated, because the U.S. economy has been stronger for 
longer than almost anyone imagined. 

I am also skeptical about the need for a rate cut. The economy is doing just fine and unless we see some sustained weakness (ie: 6 months - which would put us out to the end of the year) I don't see the need.

One sticking point - many of the other large economies are likely to cut rates, which could put upward pressure on the USD, that might either stall out the economy or prompt a smallish cut in rates.

BTW I expect a pretty significant (say 10%) pull back in equities as the market starts to realize rates are not coming down...

tecmo
...

Elsewhere someone was talking using language like "when" and not "if" when referring to interest rates (mortgages) getting back to 3-4%. My response was that rates that low is not standard in history but just something that recently occurred (along with the exceptionally rare ~2% rates).

Interest rates during my lifetime have generally slowly dropped from a peak near the end of my high school days around 17% down to the bottom around covid starting.

To me it seems like the current rates are fine. Sure if you are buying a house you'd like much lower rates but that isn't a guarantee to happen.

I am also skeptical about the need for a rate cut.

I don’t think a rate cut is coming any time soon and if it wasn’t an election year I have a hunch we would likely see another hike or two.

Anecdotally from my day job, the funding costs for the captive I work for have crept back up near the highs we saw last November. The market seems to agree we won’t see a rate cut for a while yet. The month to month changes in our costs roughly track the 3yr US treasury for our US lending and I would say that’s probably about the same for captives of the major auto manufacturers. The 0%/60mo and 0%/72mo offerings we see in the market still for some of the manufacturers are probably costing them in the neighborhood of 15%-20% of the financed amount for the vehicles. Probably more because their write offs are so much higher than what I’m used to.

The consumer side of our business continues to weaken and likely will not turn around until housing starts increase.

The business side peaked several months ago as the long order backlog has finally been eroded and new orders coming in are down significantly from same time last year. Banks are tightening up on some customers for operating lines and write-offs are starting to tick up off historical lows.

My employer would definitely like to see rate cuts to start to drive some demand but my personal finances would definitely like to see inflation contained.

Jeff

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