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50bps cut… uber-dovish Dots… Powell pushed back… stocks end red, dollar and yields end higher.

“The US economy is in a good place and our decision today is designed to keep it there,” said Fed Chair Pay Powell during the press conference.

So a crisis-level 50bps rate-cut at record highs for stocks and home prices, just two months ahead of the election is warranted because the “economy is in a good place.”

The next time the Fed meets, voters will have already cast their vote for the next president.

Powell on incorporating political factors into Fed decisions:

“We just don’t do that.”

But Kamala liked it:

“The Fed’s rate decision is welcome news for Americans.”

And none other than Democratic Congresswoman Maxine Waters of California applauded the Fed’s rate cut in a statement:

“I am pleased that the Fed has not only remained independent, but shown the importance of remaining independent as it followed the data and not politics.”

Republican Senator Kevin Cramer of North Dakota criticized the Fed’s move in a post on social media:

“The Federal Reserve claims political independence. They could have waited to move rates until after the election to confirm it. 25 basis points would’ve received minor grumblings, but the claim rings hollow with 50 basis points.”

It’s a good job The Fed is “strongly independent”!!!

Was it Trump or Biden who promised in April that “before the year is out there’ll be a rate cut?” https://t.co/F8XjS8JmYt

— zerohedge (@zerohedge) September 18, 2024

The kneejerk reaction across all markets reversed considerably during Powell’s presser as he poured a little cold water on expectations.

“The committee is not in a rush,” said Powell, and with that stocks started to puke lower as he added that “we will move as fast or as slow as we think is appropriate.”

Powell stole the jam out of the equity market’s donut when he tilted hawkish by noting that “no one should look at the 50bps cut and say this is a new pace.”

But realistically, the DOTs said it all, with members desperately lurching lower in rate-cut expectations.

• In June, 4 FOMC members expected no rate-cuts in 2024, 7 members expected 1 rate-cut in 2024, 8 members expected 2 rate-cuts.

• In September, only 2 FOMC members had priced in 2 rate-cuts by year-end, 7 more saw 3 rate-cuts, 8 more saw 4 cuts by the end of 2024 and one lone uber-dove (Goolsbee?) expected 5 rate-cuts in 2024…

Source: Bloomberg

So much can change in 3 months when the government is fooling most of the people with fake data all the time

US Jobs Revised Down By 818,000 In Election Year Shocker, Second Worst Revision In US History https://t.co/IZ6b2StAMB

— zerohedge (@zerohedge) August 21, 2024

And Fed rate expectations for 2024 tumbled (and 2025 dropped too – though was already pricing in a super dovish Fed)…

Source: Bloomberg

Additionally, Powell pissed in the punchbowl by stating that we’re probably not going back to the era when trillions of dollars worth of sovereign bonds were trading negatively and says the neutral rate is probably much higher than it used to be – but doesn’t know where that level is.

So let’s survey the damage…

Stocks kneejerked higher with Small Caps exploding almost 2.5% at their highs on the FOMC statement and SEP. The S&P 500 also briefly hit a new record high. However, once Powell started speaking, all the majors reverted lower (back into the red)…

The footprint of Small Caps pump and dump was very evident in the ‘most shorted’ basket today…

Source: Bloomberg

The Dollar Index puked bigly on the FOMC statement but rallied all the way back as Powell spoke…

Source: Bloomberg

USDJPY may help clarify the flip-flop as FX markets start pricing in the next US inflation surge as the yen spiked on the FOMC statement then puked hard on Powell’s prevarications…

Source: Bloomberg

Gold exploded up to a record high $2600 before sliding back as Powell spoke…

Source: Bloomberg

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Bonds and stocks remain in world’s of their own still since the last FOMC meeting in July – stocks slightly higher (no recession, soft landing), bond yields down dramatically (recession, hard landing)…

Source: Bloomberg

Treasury yields all tumbled on the FOMC statement and pushed back higher as Powell spoke. The 2Y remained lower (unchanged on the day) while the long-end rose 7bps on the day!

Source: Bloomberg

The yield curve (2s10s) crashed into ‘inversion’ briefly before bear-steepening back up to recent highs…

Source: Bloomberg

Bitcoin kneejerked up above $61,000 before sliding back to unchanged on the day…

Source: Bloomberg

Crude prices declined on the day, whipsawed around by the DOE dats showing a big draw at Cushing and then by Powell and his pals going full dove-tard!

Source: Bloomberg

Finally, will Powell’s legacy be that of Arthur Burns?

Source: Bloomberg

Of course, let there be no doubt that if inflation re-accelerates from here, you can bet on the fact that Trump will get the blame completely.