Wolf Richter
Jul 27, 2024 at 9:46 pm
CCCB and Franz,

“The Fed follows market” is dumb BS spread by people who don’t understand anything about the Fed, and I’m tired of this dumb BS getting spread here.

The Fed COMMUNICATES about rate cuts/hikes months IN ADVANCE, and there are rarely any surprises. In bits and pieces, the Fed outlines what it will do months ahead of time.

To communicate what it will do, the Fed uses:
— the “dot plot”
— Powell’s post-meeting press conference
— the FOMC statement
— the FOMC minutes
— speeches by Fed governors, etc.

The Fed has been talking about rate cuts for 8 months – using all of the aboce. That’s what markets react to. Markets FOLLOW what the Fed SAYS. But charts don’t tell you what the Fed says and when it says it. They only show you the EFFR after the hike/cut. That’s the fatal and very dumb fallacy in your theory.

But the Fed is vague in the early stages of policy changes, so markets usually get it wrong – like they got the six rate cuts in 2024 wrong. The Fed has now moved a rate cut back on the table, and markets followed what the Fed said, or what they think the Fed said. Yields have dropped because markets FOLLOWED what the Fed told t