About That “Pivot”

Powell Speaks [The Daily Reckoning] June 13, 2024 [WEBSITE]( | [UNSUBSCRIBE]( About That “Pivot” Portsmouth, New Hampshire [Jim Rickards] JIM RICKARDS Dear Reader, This is my after-action report describing the actions of yesterday’s Fed meeting. Today, I’ll explain what happened in terms of policy moves, what Fed Chair Jay Powell believes will happen next, and what the market expects. That’s important because this isn’t the mainstream media. The difference between Jay Powell’s expectations, and market expectations creates opportunities for investors to profit from those competing forecasts. On Tuesday, I offered readers the following forecast of what would happen at the FOMC meeting yesterday: On Wednesday, the Fed will leave its target rate for fed funds unchanged. That decision will keep the federal funds target at 5.50% as set at the July 26, 2023 FOMC meeting. Over the course of eighteen FOMC meetings beginning March 16, 2022, we’ve been correct in all of our forecasts including the policy rate pause that began last September. We’re confident we’ll be correct on Wednesday also. And here’s what actually happened: The Fed did keep the fed funds rate unchanged as I projected. That makes nineteen Fed meetings in a row going back to March 16, 2022, when I got the Fed forecast right. Events remain uncertain from here, but it’s so far, so good for my forecasting. Babble Here’s what the Fed said yesterday: The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%. The FOMC vote in favor of this policy statement was unanimous. This meeting included the “dots,” technically the Summary of Economic Projections (SEP) offered by 19 Fed governors and regional reserve bank presidents and presented in graphical form as a dot plot. The dots show individual forecasts of key variables such as unemployment, interest rates, inflation, and economic growth. The dots don't deserve serious attention as forecasting tools. The Fed has the worst forecasting record of almost any institution. Still, the market reacts to the dots so they should be considered at least as far as short-term market moves are concerned. [Message from VP of Research @ Paradigm: “This could be the biggest wealth-building opportunity you see all year!”]( [click here for more...]( Our VP of Research has just recorded an urgent message to inform our readers about a unique and potentially extremely profitable trade setup coming this Monday, June 17, at 10 a.m. Eastern. This one idea could hand you a huge windfall in record time. [Click Here To Learn More]( Just One Rate Cut The most important revelation from the dots is that the governors and reserve bank presidents on average now expect only one rate cut this year. Some individual officials projected no rate cuts. That’s a far cry from the three rate cuts hinted at by the Fed last March and the seven rate cuts in 2024 expected by markets last January. The Wall Street “pivot” narrative has been wrong for two years and it’s wrong again as of today. It appears safe to say there will be no rate cuts at the July or September meetings. The earliest rate cut will come in November (if then) when the Fed is safely past election day. The statement release was followed by a press conference by Fed Chair Jay Powell. While the Fed’s policy statement was more of the same, Powell’s statement and answers to questions at the press conference were far more diffident than recent statements. Powell refused to offer any guidance as to when the Fed might cut rates. He didn't even suggest that a rate cut would happen soon. Instead, he made it clear that the Fed will follow markets, not lead them. His most memorable quote was, “We’ll have to see where data lights the way.” That’s a poetic way of saying they have no idea what they’re doing or what comes next. The Fed will simply watch the CPI, PPI, PCE and unemployment numbers roll in and then make a move when they have “confidence that inflation is coming down substantially.” In other words, they’ll know it when they see it. At least he’s being honest. The Fed Doesn’t Turn on a Dime Powell made it clear the Fed wouldn’t lower the Fed funds target rate until the Fed has greater “confidence” that inflation is moderating. That does not mean one or two months of good data. It means at least three months of good data. The Fed doesn’t turn on a dime. Considering that inflation has been moving up lately, not down, the Fed is a long way from being confident that the direction is sustainably down. And that’s the difficulty. Financial media was shouting all day Wednesday about how inflation was “down” from the prior month. The New York Times even ran a headline saying that inflation was finally “cooling.” That kind of reporting is myopic nonsense. A longer perspective is needed. [Nearing Retirement? Claim This Exclusive $1 Book Offer Right Away!]( [click here for more]( “The Banker” is a hedge fund titan who spent years helping America’s richest families grow even richer. [And today, for the first time ever, he wants to send you his new book – where you’ll find 36 of his never-before-revealed income and wealth generating secrets.]( If the potential at steady, predictable income (as well the chance at a few nice, quick windfalls) interests you, then I urge you to act right away. [Click Here To Claim This Exclusive $1 Book Offer]( When inflation (measured monthly by CPI on a year-over-year basis) dropped from 9.1% in June 2022 to 3.0% in June 2023, the Fed was ready to declare victory. The Fed’s goal was still 2% annualized inflation, but progress from 9.1% to 3.0% was so dramatic that 2.0% seemed well within reach. It was around that time (July 2023) that the Fed hit the pause button on further rate hikes. Yesterday’s CPI report revealed 3.3% annualized inflation, as opposed to the consensus estimate of 3.4%. Aren’t you thrilled? Don’t Believe the Hype The fact is, inflation isn’t going down. We’re not seeing a downtrend. Inflation is stuck in a narrow range (from 3.0% to 3.7%) with a central tendency of 3.3%, exactly where it was in May. It’s stayed in that range for almost one year and is not trending toward the Fed’s stated goal of 2.0%. Powell understands this. He even took pains to say there might not be any rate cuts in 2024. He sloughed this off by saying that fewer rate cuts in 2024 would mean more rate cuts in 2025 so that by December 31, 2025 the number of rate cuts between now and then would be the same. Thanks, Jay. If the Fed can’t predict two months in advance, how are they supposed to predict eighteen months in advance? And why should we believe them? In summary, Powell is concerned about inflation and admits the persistence of inflation has caught him by surprise. Rate cuts are off the table probably for the remainder of the year, although one rate cut in November or December cannot be ruled out. At the same time, if inflation grows worse, a rate hike might be on the table to everyone’s surprise. Powell left us with one more memorable quote. He said, “It’s not our plan to wait for things to break and try to fix them.” He was referring to unemployment. He meant that the Fed didn't want to hold rates so high for so long that the unemployment rate suddenly skyrocketed. That’s a worthy intention but the Fed’s track record suggests no ability to pull that off. The likely path is the Fed will hold rates too high for too long, unemployment will soar, the economy will enter a recession and then the Fed will slash rates. It’ll be too late. Things will break. As I’ve written before, this is an environment where cash is king. Be liquid and stay nimble. The Fed doesn’t know what’s coming next and neither do markets. The best course is to be prepared for shocks, and the best way to do that is with cash and some gold. Regards, Jim Rickards for The Daily Reckoning [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) P.S. Today, Joe Biden is meeting with heads of state from around the world… And if they make the announcement my research is showing him… [It could be a death blow to the value of your hard-earned dollar.]( [I call it “Biden’s Big Steal.”]( Unfortunately we only have limited time to prepare, which is why we highly suggest you [click here now and watch my latest market briefing while there’s still time.]( Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) [Jim Rickards] [James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your The Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@dailyreckoning.com. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. 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