Rate cuts plan

The recently appointed new governor to the Federal Reserve, Stephen Miran, delivered a speech yesterday in NYC, where he laid out his views on official interest rates and monetary policy. This week is busy for Fed governors speeches, so this should be just another one. But it’s not, because it reflects the White House views on rates, and it’s the message that the new Chairman of the Fed will carry, whether it’s him or someone else. The bottom line is that Fed funds should take into account Trump’s fiscal, immigration and trade policies and therefore rates should be around 2% (206 bps as per the chart below). The effort to justify with numbers what the president wants, appears to be very aggressive, but the message has been delivered. There are 5 FOMC meetings programmed until J Powell steps down as chairman on May 23rd, 2026, and there are 8 cuts between the current rate and Miran’s goals. The market may be starting to realize that we are going to get those cuts irrespective of inflation levels, at least one per meeting. That will put official rates at 3.5% by year end. Bonds are still relatively quiet, and the dollar index has not started another leg down, but remains weak. It looks like we have plan, regardless of wether we like it or not.

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