Morning Report: The Fed cuts rates.

Vital Statistics:


Last Change
S&P futures 3007.75 0.25
Oil (WTI) 59.37 1.24
10 year government bond yield 1.77%
30 year fixed rate mortgage 4.00%


Stocks are flat after the Fed cut rates yesterday. Bonds and MBS are up small.


As expected, the Fed cut rates 25 basis points amidst concerns about capital expenditures and investment. The decision was 7 to 3, with one dissenter (Bullard) who wanted a 50 basis point cut and two dissenters (George and Rosengren) preferring to maintain current policy. The economic projections were largely unchanged, with a few upward tweaks to 2019 and 2021 GDP estimates, and a slight change to unemployment. Inflation measures were unchanged. The Fed Funds estimates were revised downward anywhere from 25 – 37 basis points compared to the June dot plot.


Sep-June dot plot comparison


Powell was noncommittal on future moves: “There will come a time, I suspect, when we think we’ve done enough. But there may also come a time when the economy worsens and we would then have to cut more aggressively. We don’t know.” In other words, we are data-dependent. The German Bund has sold off a touch, with the yield moving from negative 70 basis points a couple of weeks ago to negative 50 basis points now. FWIW, the Bund seems to be leading the dance.


Bonds initially sold off on the move, with the 10 year rising 4 basis points to 1.8%. This morning, we are back down to where we started. The December Fed Funds futures are predicting a 14% chance of another 50 basis points in cuts, a 49% of a 25 bp cut and a 37% probability of no further changes. Trump weighed in on the cut as well tweeting: “A terrible communicator. Jay Powell and the Federal Reserve Fail Again. No ‘guts,’ no sense, no vision!”


The spike in overnight repo rates (which got as high as 10% at one point) has raised an interesting question: The overnight repo rate is supposed to be the index that replaces LIBOR. While the complaint about LIBOR was the presence of some jiggery-pokery by the big banks, is the the cure (an index that can spike 800 bps in a day) really better than the disease? Note this flows through the whole mortgage ecosystem, with MBS repo rates, ARM pricing, warehouse line pricing, etc. It might not yet be ready for prime time.

8 Responses

  1. This makes me giggle.


    • I think “despite” is the wrong word. The number would be at least 50% without the relentless propaganda. One of the big problems general acceptance of man-made global warming has it the hyperbolic and apocalyptic doomsaying of it’s biggest and most visible proponents.

      For people who dive in the technical stuff, nonsense political “solutions” like the Paris accords–using global warming as an excuse to fleece taxpayers, rather than trying to do anything to improve the environment–doesn’t help. But when you have your Bill Nye’s coming out and saying you’re a moron if you don’t completely accept everything your betters tell you about climate change, and other people saying if you don’t do what they say the planet will be destroyed . . . this doesn’t convince people. If anything, it usually brings out the contrarian.

      You don’t persuade people by insulting them, calling them “deniers”, calling them “ignorant”, telling them they should just think like the elites tell them to. You also don’t persuade them by predicting the end of the world (or the oceans, or whatever) in 10 years and then when that doesn’t happen try to argue that natural phenomenon–like hurricanes–are all because you drive a car and like to grill.

      Which kind of goes to show: unless you are a totalitarian state with a KGB to prosecute wrongthink, propaganda isn’t that useful.


  2. Cultural Appropriation. How dare Ikea culturally appropriate the brits by putting peas in jerk chicken!

    Liked by 1 person

    • “Space Satellites Show New Ice Age Coming Fast”

      Now they show the north pole is melting, or whatever. Do space satellites ever show everything is just fine?

      It’s a good piece. Shows how much one very wrong person can influence the conversation–so much of that comes from Erlich–and how much the press incentivizes scientist talking about a coming apocalypse.

      You run that past any global warming true believer, though, it’s dismissed with a hand wave. “We’re such much smarter now. The technology is so much better. 96% consensus! Why do you hate science?”


    • The 1967 article hints at what is probably a major flaw in these models – overestimating population growth.

      Typically you will see spikes in growth rates as modern medical breakthroughs (vaccines, better prenatal care etc) lower infant mortality. But as time goes on, family sizes then shrink in response. Assuming he was using data from 1900, US population grew from 76.2MM in 1900 to 152.3MM in 1950, or a 1.39% growth rate. from 1950 to 2000, the rate fell to 1.24% and since 2000 it has been 0.83% annually. Some immigration noise is in those numbers of course, but familes have shrunk in size. The thing is, India and China are in that steep part of the S curve. If the climate models are mindlessly extrapolating those growth rates then the models will be way to pessimistic.

      Of course nobody wants to hear a “garbage-in-garbage-out” argument like that. It is much more fun to snark dOnT YoU UnDerStANd ScIENCe??? Especially, ESPECIALLY, if you haven’t ever taken a quantitative science class in your life and barely passed high school algebra. Cause nobody knows more about this stuff than an actress.

      Same thing with energy consumption curves… If they are assuming the amount of coal generating capacity is going to quadruple over the next 100 years, again GIGO.

      But, if the left wants to make the sale, they need to show the raw data, show how they adjusted it to the current data, and explain their population growth assumptions and their energy consumption expectations. And, give a base case scenario, with probability estimates around that base case scenario. Until they are willing to do all of that, i am going to be skeptical.


  3. Interesting argument from the right against Amy Comey Barrett:


Be kind, show respect, and all will be right with the world.

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