Desperately Seeking Neutral

Relative Terms
Sophisticated Guesswork
Cause and Effect
We Want to Hear from You
Florida and Going Back to College

One of the more fascinating and mysterious parts of watching the Federal Reserve is the ongoing dialogue between Fed leaders and Wall Street. We imagine private meetings held in great secrecy. Those may in fact occur, but I’m not sure they are even necessary. The parties exchange their requests publicly. All those speeches, interviews, and papers are available to everyone, but have a specific audience in mind.

Wall Street (i.e., bankers, money managers, large investors, etc.) makes its preferences known mainly through market price action. This group almost always wants lower interest rates and more liquidity. “We” (as Wall Street likes to speak for Main Street) always need lower rates to “save” some piece of the economy.

The last few months were a kind of open negotiation with Wall Street wanting rate cuts pronto and the Fed saying, “Not so fast.” This is still in progress but seems to be wrapping up. Jerome Powell has been saying the market dream of six rate cuts this year is fantasy. We should expect three cuts at most, and they won’t start until mid-year. Investors seem to be reluctantly accepting it.

None of this is locked in, though. Today I want to think about what the Fed is doing, what it is saying, and how the rest of 2024 may unfold.