SQLV - The Door Is Wide Open To Multiple Fed Rate Cuts

2024-07-12 04:50:00 ET

Summary

• The evidence supporting multiple Fed rate cuts is now solid.
• Owners' equivalent rent makes up about one-third of the CPI index and this has been adding significantly to the rise in the CPI index until this month.
• Treasury yields tend to track inflation, but with a lag that can approach one year or so.
• Cutting rates now would not be playing politics, since it would not boost the economy by any reasonable measure before the November elections; it would instead be a responsible move to avoid further damage to the economy.

The evidence supporting multiple Fed rate cuts is now solid.

As I've been documenting for at least the past year, shelter costs, as calculated according to the BLS's flawed methodology, have been artificially raising reported CPI inflation. Abstracting from shelter costs, the year-over-year change in the CPI has been less than 2% for 10 of the past 13 months , and in June, it was 1.8%. This clearly meets and exceeds the bar that Powell set this week, thus opening the door to multiple Fed rate cuts that could begin as early as the July '24 FOMC meeting, and will almost certainly occur at the September 18th meeting and at subsequent meetings....

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