Wall Street slid on fading hopes of a Fed rate cut in December

·         Gold also stumbled on hopes of an imminent Gaza and Ukraine war ceasefire under Trump; hotter-than-expected US retail sales and core CPI also dragged

·         Fed officials are now talking overtime to bring down the market-implied probability of a December rate cut to almost nil from the present 63% (already tumbled from 83% in 2 days!)

On Wednesday, Wall Street got some temporary boost on hopes & hypes of another Fed rate cut in December’24, but on Thursday, after the PPI data, Fed Chair Powell poured almost cold water on the December rate cut. Powell clarified that the last mile of core disinflation almost stalled and the Fed was not in a hurry to cut rates. Subsequently, both Wall Street Futures slip on fading hopes of another Fed rate cut in December’24.

On Thursday (14th November 24), Fed Chair Powell said in a prepared speech on the US economic outlook at a Dallas Fed business symposium:

“Looking back, the U.S. economy has weathered a global pandemic and its aftermath and is now back to a good place. The economy has made significant progress toward our dual-mandate goals of maximum employment and stable prices. The labor market remains in solid condition. Inflation has eased substantially from its peak, and we believe it is on a sustainable path to our 2 percent goal. We are committed to maintaining our economy's strength by returning inflation to our goal while supporting maximum employment.

Recent Economic Data

Economic growth

The recent performance of our economy has been remarkably good, by far the best of any major economy in the world. Economic output grew by more than 3 percent last year and is expanding at a stout 2.5 percent rate so far this year. Growth in consumer spending has remained strong, supported by increases in disposable income and solid household balance sheets. Business investment in equipment and intangibles has accelerated over the past year. In contrast, activity in the housing sector has been weak.

Improving supply conditions have supported this strong performance of the economy. The labor force has expanded rapidly, and productivity has grown faster over the past five years than its pace in the two decades before the pandemic, increasing the productive capacity of the economy and allowing rapid economic growth without overheating.

The labor market

The labor market remains in solid condition, having cooled off from the significantly overheated conditions of a couple of years ago, and is now by many metrics back to more normal levels that are consistent with our employment mandate. The number of job openings is now just slightly above the number of unemployed Americans seeking work. The rate at which workers quit their jobs is below the pre-pandemic pace, after touching historic highs two years ago. Wages are still increasing but at a more sustainable pace. Hiring has slowed from earlier in the year. The most recent jobs report for October reflected significant effects from hurricanes and labor strikes, making it difficult to get a clear signal. Finally, at 4.1 percent, the unemployment rate is notably higher than a year ago but has flattened out in recent months and remains historically low.

Inflation

The labor market has cooled to the point where it is no longer a source of significant inflationary pressures. This cooling and the substantial improvement in broader supply conditions have brought inflation down significantly over the past two years from its mid-2022 peak above 7 percent. Progress on inflation has been broad-based. Estimates based on the consumer price index and other data released this week indicate that total PCE prices rose 2.3 percent over the 12 months ending in October and that, excluding the volatile food and energy categories, core PCE prices rose 2.8 percent.

Core measures of goods and services inflation, excluding housing, fell rapidly over the past two years and have returned to rates closer to those consistent with our goals. We expect that these rates will continue to fluctuate in their recent ranges. We are watching carefully to be sure that they do, however, just as we are closely tracking the gradual decline in housing services inflation, which has yet to fully normalize. Inflation is running much closer to our 2 percent longer-run goal, but it is not there yet. We are committed to finishing the job. With labor market conditions in rough balance and inflation expectations well anchored, I expect inflation to continue to come down toward our 2 percent objective, albeit on a sometimes bumpy path.

Monetary Policy

Given progress toward our inflation goal and the cooling of labor market conditions, last week my Federal Open Market Committee colleagues and I took another step in reducing the degree of policy restraint by lowering our policy interest rate by 1/4 percentage point.

We are confident that with an appropriate recalibration of our policy stance, strength in the economy and the labor market can be maintained, with inflation moving sustainably down to 2 percent. We see the risks to achieving our employment and inflation goals as being roughly in balance, and we are attentive to the risks to both sides. We know that reducing policy restraint too quickly could hinder progress on inflation. At the same time, reducing policy restraint too slowly could unduly weaken economic activity and employment.

We are moving policy over time to a more neutral setting. But the path for getting there is not preset. In considering additional adjustments to the target range for the federal funds rate, we will carefully assess incoming data, the evolving outlook, and the balance of risks. The economy is not sending any signals that we need to be in a hurry to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully. Ultimately, the path of the policy rate will depend on how the incoming data and the economic outlook evolve.

We remain resolute in our commitment to the dual mandate given to us by Congress: maximum employment and price stability. We have aimed to return inflation to our objective without the kind of painful rise in unemployment that has often accompanied past efforts to bring down high inflation. That would be a highly desirable result for the communities, families, and businesses we serve. While the task is not complete, we have made a good deal of progress toward that outcome.”

Highlights of Fed Chair Powell’s Comments/Q&A: 14th November’24 at Dallas Fed Business Symposium

·         The economy is not sending signals that the Fed needs to be in a hurry to lower interest rates.

·         The Fed is committed to finishing the job on inflation

·         I expect inflation to continue to come down toward the 2% goal, on a sometimes-bumpy path

·         Moving policy over time toward neutral, policy path is not preset

·         The Fed is closely tracking a gradual decline in housing services inflation, which has yet to fully normalize

·         The labor market has cooled to a point where it is no longer a source of significant inflationary pressures

·         Recent US economic performance is remarkably good

·         Total personal consumption expenditures price )PCE) index likely rose 2.3% in October from a year earlier (vs 2.1% in September); Core PCE likely rose 2.8% (vs 2.7% in September)

·         The labor market is solid, inflation is on a sustainable path to 2%

·         Economic strength gives the fed the ability to approach its decisions carefully

·         The Fed doesn't need to be in a hurry to reduce interest rates

·         Fed independence means monetary policy decisions can't be reversed, or reviewable

·         As we make decisions we are not thinking about the well-being of any political party

·         The Fed should explain itself to the public and Congress-- however, it must remain independent

·         It is too early to reach judgments on the effect of Trump's policies

·         The job of staff is to go and be very nimble and make assessments in real-time--Policymakers are gonna wait longer to see what the actual effects will be

·         While it is certain that policies in several areas will change with the arrival of the Trump administration, it is yet to be known how much will change and during what timeframe

·         When it comes to fiscal policy it takes a long time to get a bill through

·         Any political factors would be a distraction

·         We will be careful about changing policy until we have a lot more certainty

·         We have time to make assessments on the net effects of policy changes before we react to policy

·         The debt path is not sustainable; we need to address that sooner than later

·         In the case of a financial stability event, the Fed can use emergency tools

·         The Fed does have obligations to explain itself to the public and Congress; Inflation is a social phenomenon

·         We're not thinking about political parties when we make decisions

·         If data lets us go slower, that's a smart thing to do

·         Today's reading on PPI was slightly more of an upward bump but I still think we are on track for inflation

·         We have space to cut rates if needed

·         It is of utmost importance for the central bank to be credible

·         The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully

·         Ultimately, the path of the policy rate will depend on how the incoming data and the economic outlook evolve

·         While the US economy is in a good place, the labor market remains in solid condition and inflation is on a sustainable path to 2%

On Thursday (14th November), Richmond Fed’s President Barkin said:

·         Fed is making great progress but needs to keep it going

·         There is still more demand for housing than supply

·         The better way to address the imbalance is more supply, not suppressing demand

·         Companies still feel labor is short on a long-term basis, and are not firing but job growth is slowing

·         The current level of unemployment is fine, whether it is normalizing or weakening is something still to be determined

·         The US economy is looking pretty good, with inflation under control

·         The unemployment rate is solid, while inflation has been great with core PCE inflation down to 2.7 percent from its peak of 5.6 percent in February 2022

·         Fed has initiated rate cuts as the economy stabilizes

·         Fed remains well-positioned to adapt to future economic shifts, whether inflationary or deflationary

·         I consider unemployment claims an important indicator now of how the labor market is evolving

·         The last 30 years were highly conducive to low inflation; the next 10 years might be more inflationary with deficits, de-globalization, and aging populations

·         It is hard to assess the impact of tariffs, but there will be some amount of cost pressure, and some movement of jobs, depending on what is implemented

·         A significant market correction could also cause families with more net worth to slow consumption

·         The US is the only advanced economy where GDP is now beyond the pre-pandemic trend

·         Companies still feel labor is short on a long-term basis, and are not firing though, job growth is slowing

·         The current level of unemployment is fine, whether it is normalizing or weakening is something still to be determined

·         The Fed is making great progress but needs to keep it going

·         Fed does watch carefully if the 10-year yield is driven by inflation expectations

·         Uncertainty is one of the reasons to be gradual and cautious about declaring victory over inflation

·         The jury is still out on how recent labor settlements will impact overall wages in the economy

·         The Fed is trying to normalize its balance sheet and not use it to tighten financial conditions

·         Weekly credit card spending may also provide a good indicator of the direction of consumption

·         Fed is in a position to respond appropriately regardless of how the economy evolves

·         Fed is in a position to respond appropriately regardless of how the economy evolves

·         The Fed has started the process of recalibrating interest rates to somewhat less restrictive levels

·         The US economy looks pretty good and the labor market looks resilient

·         Inflation might be coming under control or might risk getting stuck above the Fed's 2% target

·         From here, the labor market might be fine or might continue to weaken

·         The Fed's focus may turn to upside inflation risks or downside employment risks, depending on how the economy develops

·         The Federal Reserve is in a position to respond appropriately regardless of how the economy evolves

·         The Fed is in a position to respond appropriately regardless of how the economy is involved.

·         The US economy looks pretty good.

·         The labor market is resilient.

·         From here, the labor market might be fine or may continue to weaken

·         Inflation might be coming under control or might risk getting stuck above the Fed 2% target.

·         Feds focus may turn to upside inflation risks or downside employment risks, depending on how the economy develops

On Friday (15th November), Fed’s Barkin again popped up and said:

·         I always have expected core PCE to stay in the high twos

·         We don't control the long end of the yield curve

·         Since the Fed began cutting rates, demand data has come in stronger

·         I am taking the uninverted yield curve as good news

·         We can recalibrate rates to a somewhat less restrictive level

·         It is hard to know if we're very, or somewhat, or a little restrictive

·         We are a long way from knowing what will happen with tariffs, it is hard to know the impact

·         I hope that in Q1cy25 inflation numbers will come down

·         Pricing power is getting more limited

On Thursday (14th November), Fed’s Governor Kugler said:

·         If disinflation progress stalls, it could call for a pause in rate cuts

·         Housing and other factors may complicate lowering inflation further

·         If the labor market sputters, it is appropriate to gradually reduce interest rates

·         There's been considerable progress in easing inflation pressure

·         The Fed must be mindful of both sides of the mandate right now

·         The US labor market is still resilient but it has cooled

·         If inflation stalls or picks up, it would be appropriate to pause cuts

·         If the job market slows suddenly, gradual cuts are appropriate

·         Central bank independence is fundamental to good outcomes

·         Fed needs to pay attention to both sides of its mandate, to ensure both maximum employment and price stability, when it makes decisions on interest rates

·         The US has seen considerable disinflation while experiencing a cooling but still resilient labor market

·         In case risks arise that stall progress or reaccelerate inflation, pausing cuts would be appropriate.

·         I would favor further gradual reductions in the policy rate in case the labor market slows down suddenly

On Thursday (14th November), KC Fed’s President Schmid said:

·         I won't let enthusiasm over rising productivity get ahead of data or commitment to reaching the Fed's goals

·         It remains to be seen how much more the Fed will cut rates, and where they may settle.

·         Rate cuts to date are an acknowledgment of growing confidence that inflation is on the path to the 2% goal

·         Hope productivity growth can outrun the effects of slowing population growth

·         I won't let enthusiasm over rising productivity get ahead of data or commitment to reaching Fed goals

·         Fed rate cuts to date are an acknowledgment of growing confidence inflation is on the path to the 2% goal

·         I hope productivity growth can outrun the effects of slowing population growth, and rising fiscal deficits

·         I won't let enthusiasm over rising productivity get ahead of data or commitment to reaching the Fed's goals

·         The baseline of interest-rate cost appears to be higher than people thought a year or two ago

On Wednesday (13th November), St. Louis Fed’s Musalem said:

·         I expect the economy to grow closer to a 2% rate going forward

·         Recent info suggests inflation risks have risen

·         I am attuned to the risks of rising layoffs, though disorderly deterioration of the labor market is unlikely given the health of businesses.

·         The core consumer price index and core personal consumption expenditures price index remain elevated.

·         The pressure in services industries is slowly abating

·         Monetary policy is well positioned, the Fed can judiciously and patiently judge incoming data to decide on further rate cuts

·         Further rate easing may be appropriate if inflation continues to fall

·         Monetary policy is to remain appropriately restrictive while inflation remains above 2%

·         The labor market remains in the range of full employment

·         Strong economy on track for a solid fourth quarter

·         Growth is broad-based and driven by consumption, income growth, productivity, supportive financial conditions, and wealth effects

·         Recent high productivity could prove durably structural, but that remains uncertain

·         The business sector is generally healthy, though the smallest businesses and those in the consumer discretionary market are seeing slower earnings growth

·         Recent information suggests that the risk of inflation moving higher has risen, while risks to the job market remain unchanged or have fallen

·         The US central bank may be on the last mile to price stability, inflation is expected to converge to the 2% target over the medium-term

·         It is hard to derive many signals from the most recent jobs report; a low number clouded by storm and other impacts

·         Monetary policy is restrictive, but financial conditions overall are supportive of economic activity

·         I expect the economy to grow closer to a 2% rate going forward

·         Recent info suggests inflation risks have risen

·         I am attuned to the risks of rising layoffs, though disorderly deterioration of the labor market is unlikely given the health of businesses

·         Data since the prior meeting suggests the economy may be materially stronger

·         Inflation data was also stronger but has not yet changed the view that policy is on a path to neutral

·         There is likely space for a gradual easing of policy toward a neutral rate

·         Stronger data likely behind the rise in Treasury bonds' term premia

·         Too soon to understand the contours of the incoming trump administration's policies

·         In rising bond yields, there is also some sense of higher inflation risk and some sense that the Fed may not cut rates as much

·         The most recent CPI numbers were as expected, but I would have preferred to see some continued decline on a three-month basis

·         Data since the previous central bank policy meeting suggest the economy may be materially stronger than expected

·         I do not think the dollar's status is challenged by cryptocurrencies

On Wednesday (13th November), Dallas Fed’s President Logan said:

·         The rise in bond yields in part reflects a rise in term premiums; if the rise continues, the Fed may need a less restrictive policy

·         The labor market is cooling gradually but not weakening materially

·         Upside risks to inflation and downside risks to employment point to financial conditions posing the biggest potential challenges for monetary policy

·         The US central bank most likely will need more interest rate cuts but should proceed cautiously

·         Models show that the Fed Funds Rate could be very close to the neutral rate

·         If the Fed cuts too far, past the neutral level, inflation could reaccelerate

·         It is difficult to know how many Fed rate cuts may be needed, and how soon they may need to happen

·         The Fed has made a great deal of progress in bringing down inflation, restoring balance to the economy

·         The Fed is not quite back to price stability yet

·         The US economic activity is resilient

On Wednesday (13th November), Minneapolis Fed’s President Kashkari said:

·         The Fed has a ways to go before it stops shrinking its balance sheet

·         The bar of stopping the Fed balance sheet runoff is quite high

·         The fundamentals seem strong and I'm optimistic that will continue

·         We are modestly restrictive

·         In a higher productivity environment, the neutral rate is higher, meaning the Fed has less room to cut.

·         If inflation rises to the upside before December, that might give us pause.

·         It may take a year or two to get all the way down to 2% inflation given the dynamics in housing.

·         I don't want to declare victory on inflation, but good reason for confidence.

·         The tariff is a one-time increase in prices, that's not inflationary in itself.

·         The Fed won't model Trump policies' effect on the economy until they become clear.

·         I expect a pro-growth agenda under the new administration

·         It looks like the strong labor market and the strong economy will continue - Yahoo Finance Event

·         I continue to be surprised by US economic resilience

·         There are still six weeks before the Fed's next meeting with more data to come

·         I have confidence that inflation is headed in the right direction but we need to wait

·         Sometimes I'm frustrated by the dot plot because there is so much uncertainty

·         I have confidence that inflation is heading in the right direction

·         There is tremendous uncertainty about where the neutral rate

·         The longer the economy performs well, the more I believe that the neutral rate is higher

·         I think the labor market is in a good place

·         I still think the labor market is cooling

·         I think that despite the recent cuts, interest rates are not yet in a neutral environment, while also stating that the economy is doing well and has shown itself to be resilient.

·         We've cut interest rates by 75 basis points, we tried to bring it down back close to the neutral environment-- we're not in neutral yet, in my judgment we're still in a modestly contractional stance.

·         Ultimately the economy will guide us in terms of how far we end up needing to go.

·         Fed remains confident it can achieve its goal of bringing inflation down to its 2% target.

·         The fundamentals seem strong and I'm optimistic that will continue

·         We have to wait and see what the new government policies are, we will have to wait and see

·         A one-time tariff increase is transitory but it can become tit-for-tat, right now we're all just guessing

·         Immigration could have a big effect but we will have to see what will happen

·         New lease inflation takes a couple of years to work its way through

·         We have good confidence that the housing piece of inflation will get to normal levels, though it may take a year or two

·         The labor market has been surprisingly resilient, it's a good labor market

·         The economy looks like it's in a strong position

·         If we saw inflation surprise to the upside between now and December, that might give us pause.

·         Probably not enough time for jobs to surprise on the upside

·         Productivity looks like it's been stronger, which could mean a higher neutral rate

·         If so, we may not cut as much

·         We all agree that we're above neutral now

·         The rise in long-term yields doesn't look like it's about long-term inflation expectations

·         I think we're modestly restrictive right now. I thought we were putting two feet on the brakes but in hindsight, we were only putting one foot on the brake

·         I judge that we still have a long way to go in shrinking the balance sheet

·         Ultimately the economy will guide us in terms of how far we need to cut rates

On Monday (11th November), Fed’s Kashkari said:

·         The economy has remained remarkably strong, not all the way home on inflation

·         The Fed wants to have confidence inflation will go back to 2%; needs to see more evidence before deciding on another cut

·         Uncertainty remains on deportation policy, will work with Congress and the business community on adjustments

·         If businesses lose employees due to deportations, it could disrupt them

·         It will be between the business community and Congress on how to adjust to deportations; there is still uncertainty about what the policy will be

·         The Fed will have to wait and see what is decided on immigration

·         At some point, Federal debt and deficits will have to be addressed

·         A one-time tariff would increase the prices of goods but would not create persistent inflation unless other countries respond

·         Businesses and labor are expressing cautious optimism about the economy

·         Not concerned about political influence on the Fed; officials are focused on mandated goals

·         Unconcerned about the Fed-Trump dynamic: the goal is to lower inflation

On Friday (15th November), Fed’s Goolsbee said:

·         The dispute on neutral rate could support slower cuts

·         I am perfectly comfortable with disagreement within the Fed over where the neutral rate is and personally comfortable not charging toward a neutral

·         If productivity growth stays higher than the trend, need to be careful relying on the GDP growth rate to check if the economy is overheating

·         Neutral is significantly lower than where the Fed policy rate is now

·         There's a lot of volatility in the inflation data series

·         Recent inflation has been a little higher than the target if that is extended, it's too high

·         Not a lot has changed on that in the last couple of weeks

·         If we started to see a reversal in inflation progress, we would have to figure out if it is a bump

·         Inflation numbers have to keep improving

·         I am personally comfortable with not charging right toward neutral and slowing down as we approach it.

·         We are going to be looking at rate cuts along the lines of September Fed policymaker projections.

·         The Fed needs to focus on longer trends.

·         Markets react immediately and in most extreme terms; that's not the Fed's timetable.

·         When asked about a December rate cut/pause: I don't like tying our hands, there is still more data to come.

·         I hope inflation in the US will subside in the first quarter of 2025

·         I'm not hearing the kind of inflation we've seen in the past and that gives me hope that as we get through the first quarter, those numbers will come down

·         I am not sure whether or not the Fed plans to lower interest rates further in December, the current level of monetary policy is restrictive enough

·         As uncertainty is still present when it comes to the future of the economy, you probably do want to be a little bit more careful

·         Everything is always on the policy table

·         When asked about a December rate cut/pause: I don't like tying our hands, still more data to come. We are going to be looking at rate cuts along the lines of the September Fed projections.

·         Recent inflation has been higher than the target, if that's extended then it's too high.

·         Not a lot has changed in the past couple weeks.

·         Unless conditions change, I feel good about the 12-18 month path to neutral.

·         The current Fed policy is still in a restrictive posture

·         I do not think rates will go back to where they were before the pandemic

·         I still feel good about a 12 to 18-month path to a neutral interest rate

·         Long rates may be rising because growth is expected to be higher, or because markets think the Fed might slow its rate cuts

·         The Fed has to figure out why the 10-year is rising and keep an eye on long rates

·         I have seen prior moves up in import prices that were just a bump in the road

·         What matters to the Fed is the new months of inflation data that are coming in, the Fed must reach 2%

·         Rates are likely to need to fall over the next year

·         The Fed is not going to move the inflation goalposts

·         Policy has nothing to do with the outcome of the election but the condition of the economy

·         If there is disagreement over the neutral rate, it does make sense to start slowing the pace of rate cuts.

·         As long as inflation continues to come down, rates will be a lot lower than they are now.

·         It's hard to reconcile recent weak jobs reading given storm impacts

·         The basic story of the economy remains falling inflation, and the labor market cooling to full employment

·         The Fed needs to focus on longer trends

·         We are going to be looking at rate cuts along the lines of September Fed policymaker projections.

·         I am personally comfortable with not charging right toward neutral and slowing down as we approach it.

·         Inflation numbers have to keep improving.

·         If we started to see a reversal in inflation progress, we would have to figure out if it is a bump

·         Not a lot has changed on that in the last couple of weeks

·         Recent inflation has been a little higher than the target if that is extended, it's too high

·         There's a lot of volatility in the inflation data series

·         Neutral is significantly lower than where the Fed policy rate is now

·         If productivity growth stays higher than the trend, need to be careful relying on the GDP growth rate to check if the economy is overheating

·         I am perfectly comfortable with disagreement within the Fed over where the neutral rate is

On Friday (15th November), Boston Fed’s President Collins said:

·         December rate cut is certainly on the table but not a done deal—

·         There’s more data that we will see between now and December, and we’ll have to continue to weigh what makes sense

·         As far as I can tell, I do not see evidence of new price pressures

·         Firmer inflation in recent months instead reflects the effects of the longer-term dynamics of past shocks

·         I don’t see an argument for maintaining restrictive policy when there is no evidence of new price pressures, and the old dynamics are perhaps unevenly and gradually resolving over time.

·         Fed could eventually slow down the pace of rate cuts but too soon to say if it will be in December.

·         Fed policy is restrictive

·         Don't see evidence of new price pressures

·         We will get to a place where it will be appropriate to feel our way more slowly and more cautiously.

·         I expect lower rates will be warranted

·         Fed policy is restrictive

·         The economy is in a very good place right now

·         I won't take a December easing off the table

·         I do not see evidence of new inflation pressures

·         The job market looks like full employment conditions

·         I don't see a big urgency to lower rates, but I want to preserve a healthy economy

·         Won't take a December easing off the table, doesn't see a big urgency

·         Fed Policy Well-Positioned for the Future of the Economy

·         Labor Market Doesn't Need to Soften Further

·         Data suggests further potential for balance sheet reduction (QT)

·         Requires Data Before Deciding on the December FOMC Meeting

·         Election's Economic Impact Unclear

·         Policy forward guidance is not advisable

·         No signs of new inflation pressures

·         Sees risks to the labor market in hiring concentration

·         Sees strong trajectory for inflation reaching 2%

·         Fed Must Preserve Healthy Economic Conditions

·         Sees no need for explicit rate guidance at this time

·         Warns of vulnerability to economic shocks in both directions

·         Sees inflation risks from robust expenditure

·         Expects Uneven Progress in Future Inflation

Bottom line:

The projected Fed rate cut of 25 bps in Dec’24 may not be assured as US core disinflation may have stalled in Q4CY24 too, while average unemployment remains around 4.0%; Fed may also give a pause in Dec’24 even after favorable data for any cuts as Fed may also want to see Trump 2.0 policies, especially immigration and threatened deportations, which may again tighten labor market and boost inflation. But Powell may not take such a huge risk and irritate Trump by going for a pause in December’24. Thus Fed may cut in December’24 and may continue to cut every alternate meeting (QTR end with a fresh SEP/Dot-plots) in 2025-26 to H1CY27 for a longer-term terminal repo rate around 3.0% against projected core inflation (CPI+PCE) around 2.0% for a real REPO rate +1.0%. If the Fed doesn’t cut in December’24, then it may shift that to March’27 after cutting 100 bps each in 2025-26.

Market Impact:

On Friday, Wall Street stumbled from a post-election life time high area on fading hopes of a Fed rate cut in December’24 as Fed’s Chair Powell and also other Fed policymakers virtually poured cold water on market expectations; the implied probability of a December’24 rate cut tumbled from around 83% before Powell’s Thursday speech to around 65% Friday. Almost all prominent Fed speakers (policymakers) are now providing media bytes overtime to talk down the implied probability of a December’24 rate cut at least below 50% and to almost 10-5% by 1st week of December, before the official Fed blackout period soon after 6th February (Friday) after getting the November NFP/BLS job report; November core inflation report will come in 2nd week of December during blackout period. On Friday, Wall Street was undercut by hotter-than-expected US retail sales.

Additionally, Gold, Silver, and also oil were under pressure because of the fading concern of another Iran attack on Israel as Trump wins. As per some reports, quoting an Israeli source:

“As of now, the Iranians have withdrawn from their decision to respond. Trump's election had an impact on Iran's decision on whether to retaliate, although even before that they were debating the if/how/when”.

On Friday, the SPX-500 slumped -1.3%, the DJ-30 slid -305 points, and the NQ-100 plunged -2.2%. Wall Street was dragged by techs, healthcare, communication services, consumer discretionary, consumer staples, materials, industrials, and energy, while boosted by utilities, banks & financials, and real estate. Techs plunged led by Nvidia, Amazon, Meta, and Alphabet on potential tech/cold war with China and also the EU. Pharma is under stress that Trump may appoint vaccine skeptic Kennedy Jr. to head the Department of Health and Human Services, causing declines in stocks like Amgen and Moderna. For the week, the S&P 500 slumped -2.2%, the Dow Jones Industrial Average slid -2.3%, and the Nasdaq tumbled -2.9%; all stumbled after scaling a new life time high on Trumponomics 2.0 optimism.

Weekly-Technical trading levels: DJ-30, NQ-100, SPX-500, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 44000) now has to sustain over 44800 for any further rally to 45000/45200-45500/46000 in the coming days; otherwise sustaining below 44750-44650, DJ-30 may again fall to 43900/43300-42600/41600 in the coming days.

Similarly, NQ-100 Future (21150) has to sustain over 21500 for a further rally to 21700/21900-22050/22500 and even 23000 levels in the coming days; otherwise, sustaining below 21450-21350, NQ-100 may again fall to 20950/20850-20500/20300 and 20000/19800-19650/19350 in the coming days.

Technically, SPX-500 (5750), now has to sustain over 5725 for any recovery to 5935/5950*-5975 and further rally to 6000/6050-6100/6150 in the coming days; otherwise, sustaining below 5700, may again fall to 5675/5650*-5600/5575*-5550/5500-5475/5450 and 5425/5390-5370/5300* and 5250/5100* and further 5050/4950*-4850/4750 in the coming days.

Technically, SPX-500 (CMP: 6000), now has to sustain over 6100 for any further rally to 6150/6200-6350/6500 in the coming days; otherwise, sustaining below 6075/6050, may again fall to 6000/5950-5900/5850 and 5675/5600-5550/5500 in the coming days.

Also, technically Gold (CMP: 2600) has to sustain over 2590-2575 for a recovery to 2635/2675-2700/2715 and further 2725/2750-2775/2795 in the coming days; otherwise sustaining below 2575, Gold may further fall to 2540/2500-2470/2450 in the coming days (depending upon Fed rate cuts,  Gaza/Ukraine war trajectory).