An unpopular FOMC forecast – a 25bp September interest rate cut is ‘one and done’ for 2024

Economist Ed Yardeni wrote an opinion piece for Dow Jones news (via Market Watch).

Here is a brief summary of the key points from the article:

• The BLS household survey showed 1.54 million U.S. workers were impacted by weather in July, up from 280,000 in June. The drop in unemployment claims after Hurricane Beryl hit Texas also reflected the weather impact.
• Beryl also hurt Housing and Production. Housing starts fell 6.8% in July, led by a 22.9% drop in the South. Industrial production also dipped in July due to weather-related shutdowns.
• Retail sales rose 1% in July, but core sales were more modest.
• The Atlanta Fed’s GDPNow model cut its Q3 growth forecast to 2% from 2.4%, mainly due to housing weakness.

And on implications for Fed Policy due to these ‘weather’ factors:

• If our analysis is correct, the Fed is more likely to cut the federal-funds rate by 0.25% than 0.50% at its September meeting. That might be it for the year: “One-and-done in 2024” has been our mantra. The markets might have to reassess widespread expectations for seven rate cuts over the coming 12 months.
• The most compelling reason for the Fed to minimize September’s rate cut is that a move of more than 0.25% lower might cause another carry-trade unwind. The BOJ should be and would be tightening more aggressively were it not for the carry-trade crisis that shook markets earlier this month. Meanwhile, if the Fed eases too much and doesn’t push back against expectations of more rate cuts to come, the yen (USDJPY) could strengthen again, triggering a second wave of unwinding carry trades.

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Huh. While I can see Yardeni’s points I suspect it’ll be more than one cut this year. Maybe December (Merry Christmas!). As to that second ‘implication’ point, further volatility from a carry-trade unwind. Nah. Maybe another unwind is a problem for the Bank of Japan, but not so much for the Federal Reserve.

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Only three more Federal Open Market Committee (FOMC) meetings to come this year:

• September 17-18
• October 29-30
• December 10-11

Then Q1 of 2025 has two:

This article was written by Eamonn Sheridan at www.forexlive.com.