Fed Cuts by 25 Basis Points, to 4.25%-4.50%, Sees Only 2 Cuts in 2025, Sees Higher Inflation, Higher “Longer-Run” Rates. QT Continues

By Wolf Richter for WOLF STREET.

The FOMC voted today to cut the Fed’s five policy rates by 25 basis points, with 1 participant dissenting, (Cleveland Fed president Beth Hammack who preferred no cut).

And participants see only two cuts in 2025, after economic growth, labor market growth, consumer income and spending, the acceleration of inflation, and big up-revisions of the data this fall have changed the scenario from that infamous soft landing to cruising at a fairly high altitude at an above average speed.

The FOMC also lowered by an additional 5 basis points the offering rate of its Overnight Reverse Repos (ON RRPs), which takes the offering rate to the bottom of the range of its rates (4.25%). The minutes of its last meeting disclosed discussions to that effect. We’ll mull this over in a separate article later, but briefly:

The Most Splendid Housing Bubbles in America, November Update: Prices Drop in All 33 Big Metros, Most in Austin, Tampa, Dallas, San Antonio

By Wolf Richter for WOLF STREET.

The dynamics in the housing market are now sort of messy: The lowest demand for existing homes since 1995 has led to rapidly rising active listings, as buyers are on strike because prices are too high. Homebuilders have been building single-family houses at breakneck speed, creating the biggest pile of unsold completed houses since 2009, and they’re throwing around massive incentives, including mortgage-rate buydowns, to move the inventory.

Mortgage rates, which have risen on renewed inflation fears since the Fed started cutting rates, are back to the old normal, before the era of QE started in 2008, and Fannie Mae’s CEO said that people should get used to them. To top it off, renting a nice single-family house is now far cheaper than buying an equivalent house after the mindboggling spike in home prices and the now old-normal mortgage rates.

So, prices in many major metropolitan areas, even in San Diego and Los Angles, have started to sag.

Three Rules to Prepare for the Next Meltdown

By Porter Stansberry

Government deficits are soaring like never before...

As of mid-September, this year's budget deficit represented nearly 6% of U.S. gross domestic product ("GDP") – a level that's unprecedented in U.S. history, outside of wartime or a severe economic downturn.

In other words, the U.S. government is spending as if we're already in a crisis... before any crisis has even begun.

Meanwhile, the Federal Reserve is now aggressively cutting interest rates for the first time since the COVID-19 lockdowns... despite official inflation measures remaining well above the central bank's official 2% target.

I'm no longer sure whether we'll imminently experience a recession and stock market meltdown... or an inflationary boom and stock market melt-up, followed by a severe downturn.

As such, I believe investors should do their best to be prepared for either outcome.