Prepare For Interest Rate Cuts: The Fed Pivot 2024

Summary

The video script discusses the Federal Reserve's anticipated interest rate cuts, with a 95.3% chance of no change at the upcoming July meeting and a 100% market expectation for a cut in September. It highlights the potential for renewed inflation, the impact on housing and labor markets, and the possible effects on Social Security recipients. The script questions the timing of rate cuts amid strong economic indicators and suggests the Fed's dual mandate of managing inflation and employment as a driving factor. It also speculates on the future of various interest rates and their implications for the economy.

Takeaways

• 📉 The next Federal Reserve meeting is expected to do nothing, with a 95.3% chance that they will not cut interest rates.
• 📈 Market expectations are for a 100% chance of an interest rate cut at the September 18th meeting, with an 88.7% chance of a 0.25% cut and an 11% chance of a 0.5% cut.
• 💡 The significance of a small 0.25% interest rate cut is that it marks the beginning of a series of cuts expected in 2025 and 2026.
• 💸 The Federal Reserve's projections include reverting back to an extreme level of money printing, which is expected to lead to easy money policies.
• 🤔 The question posed is why the Federal Reserve would cut interest rates when the economy appears strong, with positive GDP, high home prices, and a strong labor market.
• 🔥 The potential impact of aggressive interest rate cuts and money printing could reignite inflation, making current high costs of living even worse.
• 💼 The Federal Reserve has a dual mandate of managing inflation and maximum employment, which might explain their decision to cut rates despite economic strength.
• 📊 The Federal Reserve's projections for 2024 and 2025 include cutting interest rates from 5.5% to 4.25% and then to 3.25% by the end of 2026.
• 🏦 Interest rates on credit cards and auto loans may not see significant reductions even with Federal Reserve cuts, but mortgage rates could drop to the mid 5% range by Q1 of 2025.
• 📈 While easy money policies are generally positive for risk-on assets like the stock market, history shows that markets can also react negatively to Federal Reserve pivots.

Q & A

When is the next Federal Reserve meeting scheduled to conclude?

The next Federal Reserve meeting is scheduled to conclude on Wednesday, July 31st.

What is the market expectation for the upcoming Federal Reserve meeting in July?

The market expects that the Federal Reserve will do nothing at the upcoming meeting, with a 95.3% chance that they do not cut interest rates.

When is the Federal Reserve meeting after July, and what are the market expectations for interest rate cuts?

The Federal Reserve meeting after July takes place on September 18th. The market expectation is a 100% chance of an interest rate cut at this meeting or prior, with an 88.7% chance of a 0.25% cut and an 11% chance of a 0.5% cut.

What is the significance of the Federal Reserve cutting interest rates by a small margin, such as 0.25%?

The significance lies in the fact that this is just the start, indicating a trend of continued interest rate cuts in the following years, which could lead to an extreme level of money printing.

Why might the Federal Reserve consider cutting interest rates despite strong economic indicators?

The Federal Reserve might cut interest rates to address inflation stats that are adequately low according to their preferences and to support maximum employment, as the unemployment rate has been steadily ticking up.

What are the potential implications of the Federal Reserve's aggressive interest rate cuts and money printing on the economy?

The potential implications include reigniting inflation, increasing the cost of living, and possibly causing wages not to keep up with expenses.

How might the Federal Reserve's actions affect Social Security recipients?

If the Federal Reserve's easy money policy reignites inflation in Q4 of 2025, Social Security recipients may receive a lower cost of living adjustment (COLA) for the following year, based on Q3 inflation stats.

What is the Federal Reserve's projection for the FED funds interest rate over the next couple of years?

The Federal Reserve projects to cut the FED funds interest rate from 5.5% to 5.25% in 2024, then to 4.25% by the end of 2025, and further down to 3.25% by the end of 2026.

How might interest rates on credit cards, auto loans, and mortgages be affected by the Federal Reserve's actions?

Credit card interest rates might still remain high, averaging around 20%. Auto loan interest rates are more difficult to predict. Mortgage interest rates are expected to decrease, with the 30-year fixed rate potentially averaging in the mid 5% range to low 6% by the beginning of 2025.

What is the potential impact of the Federal Reserve's interest rate cuts on the stock market and risk-on assets?

Easy money is generally good for the stock market and risk-on assets; however, it's not guaranteed to drive up the markets, as historical precedent shows that markets can go down when the Federal Reserve pivots, often in response to financial disasters.