The Most Important Economic Revision in Years Just Happened

Summary

The video discusses the Federal Reserve's likely 25 basis point rate cut next week, based on market indicators like Treasury bill yields. It highlights the growing weakness in the economy, with revisions to job and industrial production data showing a far worse picture than initially reported. The labor market is weak, with rising layoffs and a decline in holiday hiring. Despite hawkish Fed officials, the data points to continued economic decline, forcing the Fed to lower rates further. The video also teases a webinar that will delve into the Eurodollar tightening and its future implications.

Takeaways

• 😀 The Fed is likely to cut interest rates by 25 basis points next week, confirming what the markets have been signaling.
• 😀 Despite the rate cut, the real story is about what happens after, as the economy is in worse shape than it appears based on current data.
• 😀 Treasury bill yields have dropped significantly, showing that big investors are betting on lower short-term rates.
• 😀 Job layoffs remain high, with November 2024 seeing 71,321 job cuts, still 24% higher than last November.
• 😀 Year-to-date job cut announcements have surpassed 1.1 million, a level last seen in the 2008 recession, indicating a weak job market.
• 😀 Hiring plans are down 35% compared to last year, marking the lowest total since 2010, with seasonal hiring plans also sharply reduced.
• 😀 The BLS has consistently overstated job gains, with revisions showing much lower actual job growth than initially reported.
• 😀 Revisions to economic data, such as payrolls and industrial production, are showing that the economy is much weaker than originally thought.
• 😀 The 'Pringles can' metaphor suggests that the Fed is likely to continue rate cuts, as economic conditions worsen.
• 😀 Despite some policymakers holding onto outdated inflation theories, the bond market has made its decision: rates are expected to fall further.
• 😀 Economic revisions to retail sales and consumer goods production paint a picture of a stagnant economy with little to no growth, leading to reduced consumer confidence and economic uncertainty.

Q & A

What is the primary economic concern discussed in the video?

The primary concern in the video is the weakness of the economy, which appears worse than the official data suggests. The speaker emphasizes that revised economic data, particularly related to payrolls and industrial production, points to a much bleaker economic picture.

Why is the speaker confident that the Federal Reserve will cut rates in December?

The speaker believes that the Fed will cut rates in December because of significant changes in market behavior, particularly in the Treasury bill market. Despite some policymakers' dissent, market signals, such as the drastic drop in the yields of short-term Treasury bills, indicate that the Fed is likely to lower interest rates.

What role do Treasury bills play in understanding the Fed's actions?

Treasury bills are used as a key indicator in the market for predicting the Fed's actions. The speaker points to the falling yields on short-term Treasury bills as confirmation that the market expects the Fed to lower rates, suggesting that real money investors are positioning themselves for lower rates.

How does the speaker view the Fed's position on inflation and interest rates?

The speaker criticizes some Fed policymakers, such as 'Casey Jeff,' who are seen as 'waffling' about rate cuts. While these policymakers have expressed concern over potential inflationary pressures, the speaker argues that there is no evidence of accelerating inflation and that rate cuts are still necessary due to broader economic weaknesses.

What does the term 'waffling' mean in the context of this video?

'Waffling' refers to the uncertainty and indecision among certain Fed policymakers about the direction of interest rates. They are not arguing for rate hikes but are hesitant to commit to further rate cuts, despite evidence pointing towards economic weakness.

How does the speaker describe the current state of the labor market?

The speaker describes the labor market as weak, pointing to high layoff announcements and a sharp decline in seasonal hiring plans. Job cuts for November 2025 are already surpassing those of 2008, signaling a concerning trend. The lack of seasonal hiring plans in November is particularly worrying, indicating economic stagnation.

What is the significance of the revisions to payroll data mentioned in the script?

The revisions to payroll data reveal that job gains were overstated, with the actual number of jobs gained being far lower than initially reported. For example, the BLS initially reported 2.9 million job gains in 2023, but revisions showed that only 2.3 million jobs were added. These revisions reflect a more pessimistic view of the labor market and the broader economy.

What does the speaker mean by the term 'flat beverage' in relation to the economy?

The term 'flat beverage' is used metaphorically to describe an economy that is stagnating or not growing. The speaker compares the economy's performance to a beverage that is flat—lacking the expected 'fizz' or growth potential, indicating economic stagnation or decline.

Why does the speaker believe that the economy is likely worse than it appears in official data?

The speaker believes the economy is worse than it appears because of the discrepancies between initial economic estimates and revised data. Many economic indicators, such as job growth and industrial production, have been significantly revised downward, revealing that the economy has been weaker than originally reported.

What is the broader implication of the speaker's argument for the future of interest rates?

The broader implication is that interest rates are likely to continue falling. The speaker suggests that despite uncertainty and conflicting opinions from policymakers, the overwhelming evidence of economic weakness and market signals indicate that rate cuts are inevitable in the near future.