No cuts in the horizon

As expected, the Fed did not cut rates after the FOMC meeting yesterday. On the heels of a better than expected GDP growth number for the U.S. (3%), chairman Powell explained that because we have a robust labor market and inflation is not quite where they want it, rates remained unchanged. But, for the first time in 30 years, two Fed governors voted against the chairman decision: Bowman and Waller, voted to cut 0.25%. It will not come as a surprise to you that those two individuals are the most probable candidates within the current Fed structure (Kevin Warsh is not currently a governor), and likely want to show Trump that they’re willing to dance to his tune. As you can see below, changes in the official release are minimum, and the odds for a cut in September have decreased to 57.6% according to Fed Fund Futures. We are not going to get cuts until something breaks or inflation goes down. And it’s difficult to see inflation down with tariffs and fiscal spending. If something is getting close to the breaking point is the housing market, and to avoid that, we need the long end of the curve to go down, not the short end. Powell knows that, but Trump does not. Or worse yet, he doesn’t care. It’s about doing as he wishes, and right now Powell is out of tune. It wouldn’t be surprising to see more governors flipping into a dovish path away from Powell. The positive note: the Fed remains independent.

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