At the Money: How To Know When The Fed Will Cut

Historical Rates

The Federal Reserve's historical rate changes have significantly impacted market dynamics. Jim Bianco highlights the aggressive rate hiking cycle that began in 2022, which blindsided many investors due to the unexpected resurgence of inflation 1. He explains that the Fed's slow pace in cutting rates is influenced by a new, underlying inflation level of 3-4%, rather than the previously targeted 2% 1. Bianco notes, "If we have a higher level of inflation, that is going to weigh heavily on monetary policy."

If we have a higher level of inflation, that is going to weigh heavily on monetary policy.

--- Jim Bianco

In the mid-1990s, rates peaked at 6% before being cut to 3%, a scenario reminiscent of today's rate environment 1.

   

Rate Expectations

Current expectations for rate cuts are shaped by specific economic indicators. Barry Ritholtz and Jim Bianco discuss the importance of tracking initial unemployment claims and wage growth as signals for potential rate cuts 2. Bianco emphasizes that a rise in unemployment claims to 275,000 or above would indicate a weakening labor market, prompting the Fed to consider rate cuts 2. He also mentions Jerome Powell's focus on 'Supercore' inflation, which excludes food, energy, and housing services, as a critical metric 2.

Powell likes this obtuse number, and he likes it because he made it up, called Supercore.

--- Jim Bianco

These indicators help investors anticipate the Fed's actions and adjust their portfolios accordingly.