Once again we gather in front of the TV, fingers crossed, hoping to see a Federal Reserve rate reduction. The percentage guesses for what would be done yesterday when the Fed Chairman addressed the nation were flying. If you bet on no change, you won. Though my mortgage watchers are largely unaffected by this, the market wasn’t so kind.
All three indexes were down significantly at the close today. The Dow dropped nearly 500 points! The news was stating 100% certainty of a rate reduction in September this morning, but by evening it was down to 76% (Who holds the Magic 8-Ball that makes these predictions?). Well, forgive me for being pragmatic, but I wouldn’t hold my breath for a September reduction. Why you ask? Look at the facts. Those of you who subscribe to my rate update have them. If you view the chart of past YoY CPI rates, you’ll see that last year’s June CPI was identical to this year’s; 2.97%. However, in July and August last year, the CPI increased (3.18% in July, 3.67% in August).
The Fed has stated they want to see a solid 2% CPI to start lowering rates. And if that seems aggressive, from 2019 to 2020 we were between 1% to 2% CPI for the most part. If inflation rises again in July and August, mirroring last year, I seriously doubt we will see a September cut. Even if the Federal Reserve does a .25% rate drop in September, they will likely pause after that one drop to gauge its effect on the economy. Three rate drops by the end of this year I fear is a pipe dream. We will see.
