Latest / Markets with Megan: A Quick Financial Markets Update / Exploring Fed Debates and Future Rate Movements | Episode 178 | 10-09-24

Transcript

Exploring Fed Debates and Future Rate Movements | Episode 178 | 10-09-24 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: That 50 basis point rate cut that we got in September may not have been as cut and dry as the market had taken.
• 0:06
  Megan Horneman: That's what the minutes from that actual meeting showed us.
• 0:09
  Megan Horneman: Today it is Wednesday, October the 9th, and today we've received the full transcript from the meeting that took place in September.
• 0:16
  Megan Horneman: It's important to understand that when the Fed holds meetings for interest rate policy, they come out with a brief statement after the meeting, as well as their decision, and then typically a press conference.
• 0:27
  Megan Horneman: It takes several weeks later until we receive the full transcript of the meeting and really get to understand what went on behind those closed doors.
• 0:35
  Megan Horneman: And while we did only get one Fed governor that dissented in that meeting in September, it seemed like it was a pretty landslide decision to cut interest rates by 50 basis points.
• 0:47
  Megan Horneman: But when you read these minutes, that's not necessarily what it's telling us.
• 0:51
  Megan Horneman: In fact there were some officials that would have preferred only a quarter point rate cut, and that is.
• 0:57
  Megan Horneman: They don't tell us the exact number, but it's definitely more than one.
• 1:00
  Megan Horneman: That basically means that Federal Reserve Chairman Jerome Powell had to come in and kind of push those others over the edge to get to the 50 basis points.
• 1:08
  Megan Horneman: All of the officials did agree that some cut in interest rates was necessary.
• 1:14
  Megan Horneman: At the time they noted their higher risks to the labor market and then also that there were lower inflation risks.
• 1:21
  Megan Horneman: So it did warrant a interest rate cut.
• 1:23
  Megan Horneman: But that size of it was what was well debated in that meeting.
• 1:27
  Megan Horneman: But what came out of the meeting was, hey, it was 50 basis points and all but one dissented to that.
• 1:33
  Megan Horneman: So what does all this mean?
• 1:34
  Megan Horneman: Basically, we're seeing the equity markets taking off.
• 1:38
  Megan Horneman: Today we're in triple digits.
• 1:39
  Megan Horneman: They're pricing in this perfect soft landing situation for the economy.
• 1:43
  Megan Horneman: But what we've seen in the past few days is a big backup in treasury yields, meaning the long end of the curve.
• 1:49
  Megan Horneman: The yields in fixed income are rising.
• 1:52
  Megan Horneman: We've breached that psychological level of 4% and typically the bond markets do this when they're telling you something else is going on.
• 1:59
  Megan Horneman: So bond markets right now are concerned about inflation, especially given that September jobs report, and they are telling you that, hey, the Fed's not going to be able to cut the way that the markets had priced in.
• 2:11
  Megan Horneman: So right now there is basically the futures market, showing a 20% chance of no change at the November meeting and an 80% chance of 25 basis points.
• 2:22
  Megan Horneman: So futures market is leaning more towards 25 now instead of 50.
• 2:26
  Megan Horneman: And before that that blockbuster jobs report we got last week the futures market was pricing in a 50 basis point rate cut in November.
• 2:35
  Megan Horneman: Now the Fed will still get one more employment report before their meeting on November 1st.
• 2:40
  Megan Horneman: So that's going to be very important and will dictate exactly what will happen at that November meeting if they will stay on hold or if they will price in for December or if it's a big miss to the downside if that 50 basis points comes back in.
• 2:56
  Megan Horneman: So we're watching the fixed income markets closely.
• 2:59
  Megan Horneman: We think the equity markets might be getting a little complacent here and we are concerned about valuations at these levels.
• 3:05
  Megan Horneman: That's all we have today.
• 3:07
  Megan Horneman: If you like this, please subscribe.
• 3:09
  Megan Horneman: Hit the alarm bell, share with your friends or colleagues.
• 3:12
  Megan Horneman: If you'd like our past podcasts, you can look this up on marketswithmegan.
• 3:15
  Megan Horneman: fm.
• 3:17
  Megan Horneman: Thank you.