The Federal Reserve will cut interest rates slightly.
That is not what it should do. It should hold them steady or even raise them but they’re gun-shy. Their action will have the perverse effect of increasing inflation slightly.
Update
Myles Udland and Grace O’Donnell report at Yahoo Finance:
The Federal Reserve cut interest rates by 25 basis points at the conclusion of its two-day meeting on Wednesday, marking the central bank’s third cut of the year.
Fed officials were split on the decision to lower rates to a range of 3.50%-3.75%, with policymakers dissenting on both sides. Chicago Fed president Austan Goolsbee and Kansas City Fed president Jeff Schmid favored holding rates steady, while Fed governor Stephen Miran favored a 50 basis point rate cut.
Called it right. I mean, they were either going to cut, raise, or leave it the same, weren’t they? Interesting to see that Austan Goolsbee and Jeff Schmid saw it the same way I did.
Maybe more impactful, QT is officially ended, which is not the same as restarting QE.
The other notable comment from Powell’s conference was stating the BLS employment survey has been systematically overstating jobs for several years and if you take that into account, job creation has been negative since the late spring. Even if strict immigration controls lowers the number of jobs for “breakeven”; I don’t see the labor market situation calling for restrictive interest rates.
I know this is a bit out there but my sense is price pressures are receding.
People call it a K-shape economy but not the way many intend it. Its an economy where software engineers are getting laid off and feeling insecure; while demand for electricians and construction workers for data centers is off the charts.
Of course the supply of software engineers is infinitely elastic (for practical purposes) while the supply of electricians or any workers in the trades is not. There’s lots of demand for all kinds of jobs the supply of which is (effectively) capped.
Anybody (literally) can advertise themselves as a software engineer. There’s a process for becoming an electrician and going through it takes years.
Let me be more specific. Good software engineers are getting laid off and feeling insecure.
Good software engineers are rare; they are more of less capped by nature.
Over the period of the last 60 years I have probably worked with hundreds of software engineers. Perhaps a dozen of them were good. In the last 20 years I have encountered, perhaps, one or two good software engineers. Practically all of them today are mediocre.
Let me acquaint you with an unfortunate reality. Most big companies are more likely to lay off good software engineers than they are to lay off mediocre ones. I have never seen a field to which Gresham’s Law is more applicable.
Perhaps there are some but I have never encountered a good software engineer working for an outsourcing company. Note that in the United States I have only worked in Chicago. I have never worked in California or Washington. Maybe things are different there. I doubt it but maybe they are.
Network effects are real, and the West Coast definitely benefits from it.
If nothing else, good engineers like to do interesting work; and the most interesting work in software is in the West Coast. I have been lucky to work with some very good software engineers — maybe because I am in a very interesting problem space.
In my experience, I have found good software engineers at outsourcing companies, but the phrase of “you get what you pay for” applies.
Back to the topic of the economy, a better of analogy what is happening is compare the stock price of GE Vernova over the past 2 years versus Microsoft.