Executive Summary:
Our Roaring 2020s economic scenario and expectations for inflation and the labor market suggest that the Fed probably shouldn’t cut interest rates this year, although one cut might be warranted if upcoming inflation reports are more subdued than we expect. Yet a rate cut next week, after the FOMC meets Wednesday, is practically a foregone conclusion. Stimulating an economy that doesn’t need stimulation won’t create more workers to address the undersupply that’s constraining the demand for labor, Dr Ed explains. Plus, cutting rates when it’s not necessary could cause stock prices to melt up and destabilize the broader financial system. ... Plus, a look at the debt crises attracting Bond Vigilantes’ attention in the UK, France, and Japan. … Check out the accompanying chart collection.
The Good: Accentuating the Positives
Friday’s employment report was weaker than we expected. It was weaker than almost everyone expected. Not surprisingly, the CME FedWatch Tool is now showing 100% odds that the Fed will cut the federal funds rate on September 17, with a 25bps cut at 89.0% odds and a 50bps cut at 11.0%.
We are raising our odds of a 25bps rate cut on September 17 from 40% to
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