Peter Boockvar on Fed Rate Cuts: Tweaking, Not Cutting Cycle

Market Reaction to Fed News

• 📈 The market has a tendency to rally whenever the Fed signals potential interest rate reductions.
• 💡 Investors have been pricing in rate cuts for months, leading to a significant reaction to recent Fed communications.

Powell's Stance on Rate Cuts

• ⚠️ Despite market expectations, Jay Powell did not explicitly suggest that a rate reduction cycle is beginning.
• 📉 The odds of a September rate cut decreased significantly leading up to the speech, indicating a shift in market sentiment.

Understanding the Neutral Rate

• 🎯 The concept of a 3% neutral rate is only applicable when inflation is sustainably at 2%.
• 📊 With current inflation at 2.9% (and core PCE expected to confirm this), the Fed funds rate technically should be around 3.9%.
• 🔑 One or two rate cuts would bring the Fed funds rate closer to this neutral rate, suggesting a limited scope for further reductions.

Rate Tweaking vs. Cutting Cycle

• ⚙️ Peter Boockvar suggests the Fed is in a rate tweaking cycle rather than a full rate cutting cycle.
• 🤔 The recent shift from hawkish Fed minutes to a more dovish speech from Powell has created confusion and a sense of unpredictability.