SEPTEMBER 12, 2024 – The August report came in at 2.5%, below my estimated 2.6%-2.8%. The 3-month annualized inflation rate is 0.9%. The 6-month annualized inflation rate is 2.9%. These figures bracket the annualized rate (2.5%) and thus indicate the annual CPI should remain in this area for awhile. The data is predicting a reading between 2.4% and 2.5% next month. I concur with the data.
As a side note, excluding rent CPI, the CPI has been slightly negative over the past four months. For the most part, deflation exists.
The market is telling the Fed to cut their rate by 25bp at the September meeting. As I have explained ad nauseum, the Fed FOLLOWS the market 100% of the time, so a 25bp cut is a near 100% certainty. Like death and taxes:) The odds of a 50bp cut are near zero. Til next month.
Shalom,
The Mann
Tag Archives: Fed
INFLATION UPDATE
AUGUST 15, 2024 – The June report came in at 2.9%, below the consensus estimate of 3.2%. I had estimated 2.8%-2.9%. The 3-month annualized inflation rate is 1.3%. The 6-month annualized inflation rate is 4.0%. These figures bracket the annualized rate (2.9%) and thus indicate the annual CPI should remain in this area for awhile. The data is predicting a reading between 2.6% and 2.8% next month. I concur with the data.
The market is now expecting 125bp in rate reductions from September through January. That seems reasonable with unemployment rising and the CPI below 3%. Til next month.
Shalom,
The Mann
The market is now expecting 125bp in rate reductions from September through January. That seems reasonable with unemployment rising and the CPI below 3%. Til next month.
Shalom,
The Mann
INFLATION UPDATE
JULY 12, 2024 – The June report came in at 3.0%, below the consensus estimate of 3.4%. I didn’t expect quite so low. But, was not surprised. The 3-month annualized inflation rate is 2.4%. The 6-month annualized inflation rate is 4.9%. These figures bracket the annualized rate (3.0%) and thus indicate the annual CPI should remain in this area for awhile. The data is predicting a reading between 3.0% and 3.2% next month. I think 2.8%-2.9% is likely.
The market is expecting one rate reduction from the Fed – maybe in September or December. There is a very slim, but increasing, chance of a rate reduction at the upcoming July meeting. I have also seen a forecast of up to 8 reductions by next Summer. That seems extreme to me. But, if the unemployment rate goes up to 4.4%-4.5% and the CPI can stay below 3%, then the Fed may well make a 25bp reduction at every meeting once they start with the first one.
Shalom,
The Mann
P.S. For those that read to the end….One indicator I have seen shows Bitcoin at $240,000 next Summer. As I always, say, we shall see.
P.P.S. Two questions for you to research now that you will have to answer in the future. Are you an Accelerationalist or Deccelerationalist? And will you remain an entirely organic human (non-augmented) or have a machine imbedded into your brain to become a silicon-based superintelligent being (augmented)? If you will take the time to research these, you will thank me 5-10 years from now. Books to look into include The Singularity is Nearer and Homo Deus.
INFLATION UPDATE
JUNE 14, 2024 – Well, the May report is in, and it clocked a 3.3% inflation rate, just a hair below my forecast of 3.4%-3.6% and the consensus estimate of 3.4%. Meanwhile, the 3-month annualized inflation rate is holding steady at 5.0%, and the 6-month rate is at 4.6%. These numbers are higher than the annualized rate of 3.3%, signaling that we’re likely to see the annual CPI stick around these levels or even climb a bit higher for the foreseeable future. Next month’s reading is predicted to land between 3.3% and 3.4%, but I’m betting it’ll come in a tad lower.
Remember my prediction from last month about the Fed’s December statement? They had high hopes of lowering interest rates three times in 2024, which seemed pretty optimistic. The market was more cautious, expecting just one reduction, maybe in September or December. Following the market’s lead, the Fed has now revised their statement, hinting at just one rate cut before the year wraps up.
Here’s my take: although the Fed publicly aims for a 2% CPI target, it sure seems like they’re content with it hovering in the 3.0-3.5% range. Intentional? You bet.
Shalom,
The Mann
Remember my prediction from last month about the Fed’s December statement? They had high hopes of lowering interest rates three times in 2024, which seemed pretty optimistic. The market was more cautious, expecting just one reduction, maybe in September or December. Following the market’s lead, the Fed has now revised their statement, hinting at just one rate cut before the year wraps up.
Here’s my take: although the Fed publicly aims for a 2% CPI target, it sure seems like they’re content with it hovering in the 3.0-3.5% range. Intentional? You bet.
Shalom,
The Mann
INFLATION UPDATE
MAY 16, 2024 – The March report came in at 3.4%, at low end of my forecast of 3.4%-3.6% and below the consensus estimate of 3.5%. The 3-month annualized inflation rate is 6.7%. The 6-month annualized inflation rate is 3.8%. These figures are above the annualized rate (3.4%) and thus indicate the annual CPI should remain in this area or higher for awhile. The data is predicting a reading between 3.4% and 3.6% next month. I think this reasonable.
The Fed’s December statement that they expect to lower interest rates 3 times in 2024 looks to be inaccurate. The market is expecting one reduction – maybe in September or December.
It appears to me that although the Fed states their CPI target is 2% they are actually keeping it in 3.0-3.5% range on purpose.
Shalom,
The Mann
PS For those who read to the end, a tidbit of amazing information. By the Year 2100, the largest Age Group in the European Union will be 85 years and older. It won’t even be close. The second largest Age Group (55-59yo) will be about 60% the size. If you wonder why the world is going to robotics (Amazon has more robots than human employees now), it is because we simply won’t have enough human workers. The working age population worldwide is projected to decline beginning around 2050.
INFLATION UPDATE
APRIL 11, 2024 – The March report came in at 3.5%, above my forecast of 3.0%-3.2% and the consensus estimate of 3.4%. No doubt about it, this was a strong inflation reading.
The 3-month annualized inflation rate is 7.4%. The 6-month annualized inflation rate is 4.0%. These figures are significantly above the annualized rate (3.5%) and thus indicate the annual CPI should remain in this area or higher for awhile.
The data is predicting a reading between 3.2% and 3.6% next month. I think the reading will be between 3.4% and 3.6%.
The Fed’s December statement that they expect to lower interest rates 3 times in 2024 looks to be inaccurate. The market is expecting one reduction – maybe in June. As I always say, we shall see.
Shalom,
The Mann
The 3-month annualized inflation rate is 7.4%. The 6-month annualized inflation rate is 4.0%. These figures are significantly above the annualized rate (3.5%) and thus indicate the annual CPI should remain in this area or higher for awhile.
The data is predicting a reading between 3.2% and 3.6% next month. I think the reading will be between 3.4% and 3.6%.
The Fed’s December statement that they expect to lower interest rates 3 times in 2024 looks to be inaccurate. The market is expecting one reduction – maybe in June. As I always say, we shall see.
Shalom,
The Mann
THE REMAINDER OF 2023 – ECONOMY
UPDATE JULY 27, 2023 – 2nd Quarter came in at a whopping +2.4%. Far exceeding expectations that were below +1.5%. So, we have an economy that has expanded, not contracted, this year! The stock market told us this would happen. For anyone you know that has been predicting a recession in 2023, please ask them if they admit they have been totally wrong. People need to admit their errors and stop being broken clocks. If they don’t, they have no credibility. As I note in my original post below, it is likely the current forecast of +0.5% and 0.0% for the remaining two quarters will change to the upside as the year carries on. Will the economy slowdown from +2.0%-2.4%? Yes. The stock market has said it will be stagnant the remainder of the year. But, will we see two negative figures in a row? The odds are near zero. Plan accordingly.
JULY 22, 2023 – It is all but guaranteed that the recession mongers will be wrong about such occurring in 2023. As I forecast earlier in the year, by Summer (i.e. now) those people would begin to move their prediction to a recession occurring in 2024. Enough time wasted on the large group of media and economists that are broken records.
So, what does the future hold. The past 12 months have been very easy to predict for the economy, housing, and inflation. IF you just read what the stock market (i.e. Dow 30) is telling us. Yes, it is that simple. And, yet, 99%+ of the public and pundits don’t do it.
The Dow 30 peaked in December 2022 after bottoming in October 2022. That told us to expect weakness thru April 2023. Sure enough, the Silicon Valley Bank collapse and the associated bank panic occurred in March and April.
Since December 2022, the stock market trended sideways for 8 months. Just this past week the Dow finally broke thru the 35,000 level after about 7(!) failed attempts. So, what does this tell us? It tells us that the economy is expected to be stagnant for the last 6 months of this year. And, based on this upside breakout, the economy should see an uptick in the 1st Quarter of 2024. This is a very early interpretation as the breakout just occurred this week and is only a small amount above the December 2022 high.
Is the stock market, and thus smart money, correct? Yes. As usual. 1st Quarter GDP was +2.0% (revised from the initial report of 1.3%). 2nd Quarter GDP is project to be +1.3%-1.4%. But, 3rd and 4th Quarter GDP are expected to be barely in positive territory. Exactly what the stock market has told us would be the case for the past 8 months – a stagnant Dow 30 forecasts a stagnant economy 6 months out.
Forecasts obviously vary. I have seen most to be around +0.5% for the 3rd Quarter and 0% for the 4th Quarter. But, I think those forecasts are trending up due to the strengthening housing market (that will be my next post, so please come back:) ).
The recession mongers will be screaming they told us the economy was caving. One, they have been calling for a recession for over a year (right after the actual recession just ended!) and GDP has come nowhere two negative quarterly figures in a row. Two, the stock market has forecast the ups and downs with 100% accuracy. It hasn’t been a broken record.
Based on my forecast that the CPI will trend up the remainder of the year, I suspect the market will tell the Fed to raise the Fed Funds Rate several more times. Note, the public is wrong to blame Powell for raising rates. He is simply doing what the Fed has done forever – following exactly what the market has told it to do. So, the market has obviously priced in all Fed actions ahead of the Fed meetings because the market told them what to do at the meetings!!!
But, I digress…..my point is the recession mongers will remain a broken record as they will continue to say that the Fed’s raising of interest rates is going to push us into a recession. As of today, the stock market says they are wrong and a recession is not going to happen. I put my money on the stock market instead of all of those economists that have been 100% wrong for the past year (and longer).
I believe my forecast of the housing market will be my next post. I will probably combine it with a brief discussion on banks.
Shalom,
The Mann
GDP & BANKS UPDATE
APRIL 29, 2023 – 1st Quarter came in at +1.1%. It continues to slow. But, another positive quarter. Early forecasts show 2nd Quarter GDP being slightly positive. However, with ample time for adjustments, there is a chance it could end up being negative.
Quick note, I received an email from the Fed last week showing it was expecting 1st Quarter GDP to be +1.13%. They appear to be the only one to get the forecast right. Of course, they have access to all of the data that goes into the GDP.
Regardless, it will be around Halloween before a recession can be in the books. And if the 2nd Quarter GDP does end up being positive, a recession cannot be official until late January 2024.
So far, the stock market says a recession will not occur this year. We shall see who is right – the stock market and the smart money or everyone else that is all but guaranteeing a recession will occur in 2023.
Will the Leading Economic Indicator that has declined for 10+ months and has been signaling a recession for many months be right?
Will the fact that bank credit tightening leads to a recession be right?
There are numerous other indicators signaling a recession will occur this year. The only problem they have is they are not the stock market.
My bet is, and always has been, on the stock market being correct. As always, we shall see.
BANKS – Still no new bank failures. First Republic Bank was part of this original crisis that occurred with the SVB and SNBY and Credit Suisse failures. The only other bank that is walking on thin ice is Deutsche Bank. Beyond this initial list, no banks have failed. The count remains 0 versus the 176-200 predicted by many people. (UPDATE – In 1907, JP Morgan the person came to the rescue of the banking system and in 2023 the company with his name did the same.))
The Regional Bank Index remains about 2% above the low set during the SVB/SBNY crisis with the drawdown to date being 3%. Money is not being made on these stocks. But, they sure have not fallen apart. Friday was a classic day that fools the public. The headline news was First Republic Bank heading towards failure. Instead of being down, both the Regional Bank Index and the Dow were up. The Dow is now above 34,000 again. Remember, a Bull Market climbs a wall of worry. The more negative news we have this year, the higher stocks should go. And it looks like all we will hear from the pundits is negative news. When the news turns positive, the stock market will have already topped.
Happy trading and investing.
Shalom,
The Mann
INFLATION FORECAST AND BANK UPDATE
APRIL 14, 2023 – As I said a month ago, I thought the data was forecasting a higher rate than we would see. Sure enough, annual inflation fell significantly to 5.0%. Just under my forecast of 5.1%-5.3%.
The 3-month annualized inflation rate is a very high 6.9%. The 6-month annualized inflation rate is 3.4%. These figures bracket the annualized rate (5.0%) and thus indicate the decline in the annual CPI should slow down.
Based on the data, my prediction for next month’s figure is 5.0%-5.1%. My gut tells me this will be the ceiling with a rate as low as 4.6% possible.
The June and July readings will reflect significant declines in the annual CPI. As for the July 12th forecast, the data now suggests a ceiling around 3%. The odds for a figure around 2% have become very small. It is looking like we might have 3%-4% inflation for the second half of the year. It will take a recession combined with deflation to achieve the Fed’s goal of sub-2% inflation. That said, 3%-4% is far below the double-digit rates many people have been forecasting for the past year.
Regarding banks, week after week goes by without any closures. At this point, we are much closer to my forecast of 0-10 closures than the 176-200 closures forecast by many people. CRE loan losses are on their way. But, I just don’t see many banks failing because of such. Simply due to increased capital from 15 years ago and the Fed shoring up their unrealized treasury bond losses.
The Regional Bank Index (KRE) remains about 3%-5% above the low set the Monday after the SVB/SBNY closings. The maximum drawdown since then was about 1.5%. Not much movement in general. But, the market certainly hasn’t thrown in the towel on these banks.
Lastly, the market is telling the Fed to raise rates another 25bp and then later this year lower them twice.
Shalom,
The Mann
OVERNIGHT REVERSE REPO AGREEMENTS (ORRA)
MARCH 23, 2023 – The most critical issue the Fed has to address right away is stopping the outflow of deposits from banks. It started 2 quarters ago and accelerated with the SVB debacle. The outflow continues.
The consumer is aware of the risk of having money in banks and can get a 4%+ interest rate in money market funds. Why keep money in a bank at 0.5%?
Money market funds have a sudden excess of funds and are using the Overnight Reverse Repo Agreement market to park those funds with the Fed. This is where the Fed can start QE4 – put a limit on how much money can be deposited in the ORRA.
If they use this tool, they will be making a major statement and shift in policy. Watch for this. It might be like March 2009 when they went full throttle with QE and the stock market bottomed never to see that level again.
We shall see….
Shalom,
The Mann