• 5 mins $15,000 For Your Crypto’s Ticket To Visibility
  • 1 day The Next Fashion Frontier
  • 2 days What Is Africa’s Role In The New Silk Road?
  • 3 days Trump Was Right About The Dollar
  • 3 days Is Silver Gearing Up For A Rally?
  • 3 days World’s Largest Hedge Fund Turns Bullish On Gold
  • 3 days It’s Time To Spend More On Clean Energy R&D
  • 4 days Contrarian Investors Are Beating The Stock Market
  • 4 days Bulgaria’s Revenue Agency Falls Victim To Biggest Cyber Heist In History
  • 4 days Amazon Faces European Union Anti-Trust Probe
  • 4 days Commodities Are Having A Stellar Year
  • 5 days Bezos’ Next Big Project Could Be Worth $100 Billion Per Year
  • 5 days 3,600 Years Later, Climate Change Turns Mammoths Into $40M Market
  • 5 days Tesla, Apple Claim China Is Stealing Intellectual Property
  • 5 days EV Giants Duke It Out For Battery Dominance
  • 6 days Tech Billionaire Takes Aim At Google
  • 6 days Chinese Police Bust Largest Ever Illicit Crypto Mining Operation
  • 6 days Expect A Pullback Before Gold's Next Major Rally
  • 6 days Why Interest On Gold Matters
  • 7 days Ten Extravagant Food Items For The Wealthy Only
Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Ashraf Laidi

Ashraf Laidi

AshrafLaidi.com

Ashraf Laidi is the author of "Currency Trading and Intermarket Analysis: How to Profit from the Shifting Currents in Global Markets" - Wiley Trading.

Contact Author

  1. Home
  2. Markets
  3. Other

Fed will Cut 'Transitory' in September

A Russian saying goes "nothing is more permanent than temporary". At the Federal Reserve, "transitory" may mean "permanently", or could also mean "we have no clue". Oil has dropped by 57% since over the last 12 months but the +200 PhDs at the world's biggest central bank continue to describe lower energy prices as "transitory". At the June FOMC, the Fed made some progress and finally dropped its phrase from the FOMC statement that "energy prices have stabilized".

US Crude Oil Weekly Chart

We long asserted that it will be impossible for the Fed to raise rates this year if US crude oil remains below $48.00 -- even if the next non-farm payrolls come in between 200K and 300K. The October-March decline has already triggered a chain reaction of broadening cuts in capital and labour expenditure, which effectively cast a spell on the suppliers of these energy and mining companies. And barely when oil began its spring time recovery, the declines emerged anew.

Yesterday's release of US July import prices contracted (not slowed) by 0.9% m/m and 10.4% y/y, the biggest fall since 2009. We expect oil to inevitably fall below $40, which would be a 60% decline in oil prices, thus, amplifying the impact on the already sub-Fed target inflation readings.


Market-based vs survey-based inflation

Next week's CPI release will be in focus. But the 5-year forward break-even inflation reference (5-year treasury yield minus US inflation-linked bond forward 5 years), has dropped back below 2.0% from last week's 2.4%. More importantly for the Fed, will be the crucial core PCE price index, due later this month, now at 1.3%y/y, below the Fed's 2.0% target.


Jackson Hole will be about inflation

Holding oil and the US dollar constant (if we can realistically do that), the path for a Fed hike this year does make sense. But bringing back reality into the situation, including a disinflationary USD and recessionary oil/mining sector, the question should re-emerge at the Fed's annual Jackson Hole symposium, where unsurprisingly the topic of this year's conference will be "Inflation Dynamics and Monetary Policy".

 

Back to homepage

Leave a comment

Leave a comment