Pack it up boys, time to throw in the towel
On October 3, Fed Chairman Jerome Powell said they were 'a long way' from neutral rates.
"Interest rates are still accommodative, but we're gradually moving to a place where they will be neutral," he said then. "We may go past neutral, but we're a long way from neutral at this point, probably."
In December the Fed hiked again and it's increasingly looking like a policy error.
In Powell's defense, it's not his job to forecast trade wars. However it is his job to forecast inflation and PCE rose just 1.5% y/y through April, according to data released today.
The Fed funds rate is in a range of 2.25% to 2.50%. The effective rate is at 2.39% today.
The market is screaming for a cut. Yields on 2-year notes have plunged 13 basis points today to 1.93%. On May 22, they were at 2.20%, so it's been a swan dive.
Powell speaks on Tuesday in Chicago. If he doesn't open the door to a rate cut the market is going to freak out.
One hope is that Trump engineers a turnaround on tariffs. I believe that's what will happen with Mexico but there are no signs it's coming with China.
It would be unwise for Powell to commit to a cut now but he hint that it's an option, similar to what Fed #2 Clarida did yesterday.
