Jerome Powell, The Federal Reserve, And Interest Rate Cuts: “Maybe Another 50, Maybe Not”

Benzinga

Arthur Bass of Wedbush Securities joined Benzinga's Premarket Prep team to discuss inflation, Powell, and interest rate cuts.

Transcript

00:00Alright, Arthur Bass, he's the managing director of fixed income over there at Red and Bush

00:06Securities, also doing financing and keeping an eye on interest rates here.

00:12Mr. Bass, how you doing today?

00:14I'm doing great.

00:15I appreciate being on your show.

00:17Thank you for having me.

00:18Okay.

00:19All right.

00:20Well, there's a lot of things going on in the market and, you know, sometimes, you know,

00:25we focus on different things.

00:28But the big focus earlier in the week, before we had the geopolitical news, was piling interest

00:35rates here.

00:36And, you know, they're not asking me, I didn't know, you know, an interest rate cut with

00:41the market at all time highs, a half a point.

00:44Well, you know, they do what they do.

00:47But your last note here in September, maybe another 50, maybe not.

00:54Give us your take here on the current interest rate environment.

00:58Here's my take in a nutshell, okay?

01:01Markets don't know.

01:02I don't think the Fed knows.

01:05Probabilities for the November and December meetings and next two meetings have ranged

01:09from as low as 25 percent probability of a 50 basis point move to as high as a 60 percent

01:15probability.

01:18We're right now pricing as, let me just look at my sheet.

01:22We're pricing roughly a 35 percent probability of a 50 in November and a 40 percent probability

01:29in December.

01:30My view is I think they're going to go 25 and 25.

01:35There's a school of thought that says, hey, the Fed should have done something in July

01:39and the 50 may have been a catch up.

01:42I take my thoughts, one, from Powell's comments.

01:46He said in the press conference last week that nobody should take the fact that we moved

01:5250 today as a sign that this is going to be our pace ongoing.

01:58And then he also stated in his comments, he spoke two days ago, he said the risks are

02:05two sided.

02:06And in the question and answer, he said this is not a committee that feels it needs to

02:09cut rates quickly.

02:12So I look at this that, OK, fine, we had the 50 basis point move.

02:18Right now, I think they're heading towards a 25.

02:21If you also look at the Fed dots, I don't know if you're familiar in the summer projections.

02:29Only one member projected a 25 and a 50 basis point move by the year end 24.

02:35I mean, they project rates for the year end 24, 25, 26.

02:40There's only two more meetings in 2024.

02:43Only one member projected a 50 basis point move then.

02:47Nine projected two 25 basis point moves.

02:51Seven just one 25 basis point moves and two projected no more moves.

02:55So I mean, it's certainly a range of projections.

03:00The median is 25 at each meeting.

03:03But the key, Joel, is the numbers are going to dictate it.

03:06I mean, we had the the ADP number this morning was a little bit better than expected, but

03:12ADP has not been a good estimate of the employment number.

03:17Employment number is expected to be 145 to 150.

03:21But it's kind of interesting because last month they had that downward revision announced

03:27in the Bureau of Labor Statistics that they're going to revise down the employment number

03:31by 818,000 for the last 12 months, which will start taking effect next year.

03:38So everybody just divides that by 12 and they say, OK, fine.

03:40Every number might be 68,000 higher than expected.

03:43So there's the market has a little bit of a little bit of a bias.

03:49What about I mean, you have the you mentioned the ADP numbers.

03:52We have jobs number on Friday.

03:55We have some inflation data coming out.

03:57And of course, Powell said he's not on a preset course.

04:01Are they maybe on a preset course?

04:03And do you think the numbers that are coming out, those economic data points, which kind

04:07of had muted reaction in the markets, do you think the Fed is actually waiting to make

04:12the decision based on that data?

04:14I think they're making waiting to make their decision on two pieces of data, one, the employment

04:19numbers.

04:20OK, and we've had an uptick in the unemployment rate, partly because primarily because the

04:26number of participants has increased.

04:28And if you take that from the the immigration we've had and that there are more people looking

04:34for work, not that there are less jobs, that's what caused the uptick in unemployment.

04:40But obviously, when unemployment uptick to four point three or something like that, you

04:47know, it ticked off the the SOM rule, you know, that a three month average of unemployment

04:53goes a half a point over the lowest level, then that's a predictor of a recession.

05:00And it's had a great track record.

05:02You know, she herself kind of downplayed it because of the increase in the labor supply.

05:09But nevertheless, that's one one indicator people are looking at for recession.

05:14The other is a negative yield curve.

05:15Both of those have been very, very good predictors of recession.

05:20But so far, we haven't seen it in the economic numbers.

05:23I mean, the Moana Fed is now projecting two point five percent revised down from three

05:28per third quarter GDP.

05:30Second quarter is three percent.

05:32Three percent growth is good growth.

05:33I mean, that's not a record high stocks.

05:37Three percent growth.

05:38You know, the Fed shouldn't be cutting aggressively if you look at.

05:41I agree.

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