Sometimes people disagree with me. Usually, they are right. Occasionally, I am (see: JMo inflation wager).
One of my good friends in Hermosa Beach, CA runs a multifamily shop and decided he wanted to bet me on the outcome of today’s meeting. I said 25bps, he said 50bps. We wagered a little bit of cash, but more importantly told him I would start the newsletter off with that Happy Gilmore meme if he was correct. Me apologizing publicly for being dumb and him being awesome.
What I did not tell him was that if I won, I would do the same for him.
Welcome to interest rate infamy Mark! I’ll connect you with JMo so you can join his support group - he can sit you next to Stephen Miran.
The Fed cut 25bps and added a cut this year and next year. They are now projecting a total of 75bps of cuts by year end, with Fed Funds ending 2025 at 3.5% - 3.75%.
Jay$ On Jobs
- Job market indicators suggest meaningful downside risk.
- Labor demand has softened.
- Job growth appears to be running below breakeven rate.
- Balance of risks has shifted with downside to jobs.
- Unemployment is still low but we’re seeing downside risks .
- People are struggling to find jobs.
- The Real JP note: Jay$ is talking a lot about the softening labor market, but the SEP unemployment rate forecasts for 2026 and 2027 were lowered. What the what?
Jay$ On Inflation
- Base case is tariff impact on inflation is short lived.
- Our job is to ensure a one time inflation increase does not become a long term problem.
- Disinflation appears to be continuing in services.
- We remain fully committed to 2% target (yet they keep pushing out the year they will hit 2%).
- The passthrough from tariffs has been slower and smaller than expected.
Jay$ On Rates
- You can think of today’s move as a risk-management cut.
- All year long we’ve been at clearly restrictive levels and we were able to do that because of the job market. With the revision to the jobs data, we should be moving in the direction of neutral.
- There was not widespread support for a 50bps cut today.
- 10 members voted for 2 or more cuts this year while 9 voted for just today’s cut.
The Real JP On the Absurdity of the SEP
- 1 knucklehead actually projects a hike before year end.
- Stephen Miran was confirmed just in time to vote…guess which dot is his. He’s projecting sub-3% by year end.
- 6 say no more cuts.
- 2 say one more cut.
- 10 say 2 more cuts.
- Nevermind that 7 of these people said there would be no cuts this year.
- Look at 2026: two think we’ll be at 4% while two think we’ll be at 2.5%
This is how the Fed tells us they don’t have a clue of what to expect next year.
Market Response
- Rates up about 3bps across the curve, mostly unwinding the overly dovish pricing it had baked in.
- Futures have a 57% probability of Fed Funds < 3% at year end 2026.
- More and more borrowers (particularly those that felt forced to choose fixed in the last few years) are pivoting back to floating and today’s forecasts support that decision. Floating rates are likely to be equal to 5 Year Treasury yields within 3 months.
Lots of Fed speeches tomorrow and Friday to massage the message, but very little eco data. We get Initial Jobless Claims tomorrow, and that was a market mover last week when first time unemployment claims hit their highest level in 4 years.
