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If The Fed Cuts It Will Repeat The "Cut-First" Errors Of The 2010s, 2000s, 1990s, 1980s, And The "Ignore Inflation" Error Of The 1970s
Michael Every

Two Ronnies in a Packed Programme Tonight

The market is having second thoughts. Wisely so, as there are many ways to interpret what we see and hear. In a classic Two Ronnies sketch, “fork handles” is heard as “four candles”. In the same way, markets are hearing “rate cuts” as the Fed says “rates up”. Market cheerleaders need to understand the difference between disinflation (i.e., your rent went up 20% last year, and is going up 5% this year) and deflation (i.e., your rent goes down 10%). The latter is the prerequisite for the imminent slashing of rates we are now seeing priced in.

In reality the US labor market remains tight, as Friday’s payrolls are likely to show, and a court just ruled gig food-delivery jobs must pay a minimum of $17.96 an hour. US construction spending is holding up, and most households aren’t experiencing the pain of higher mortgage rates without moving – so they aren’t. While the market focuses on the ISM, Freight Alley notes: “when you see a development in both container and trucking datasets, it suggests that something macro is happening. That is what I am seeing in container and trucking. YoY volume comps in both datasets both inflected in recent months, suggesting that inventories have burned off and the goods economy recovery may be on the way.” All this is as US core sticky inflation ticks up on a 3-month annualised rate; the NFIB small businesses’ ‘plans to raise prices’ are heading up; Michigan consumer inflation expectations have spiked; and we just experienced the largest easing in financial conditions in decades, seeing speculation roar back.

Yes, look at four candles on charts: but handle needing to stick a fork in this bond rally, because it’s overdone.

To think otherwise is to believe the Fed is willing to repeat the ‘cut-first’ errors of the 2010s, 2000s, 1990s, and the 1980s, and the ‘ignore inflation’ error of the 1970s. Maybe that is the trend to follow; but it would make Powell quite the Mastermind, another classic Two Ronnies sketch, in which the contestant answers the question before last each time.

MAGNUS: And so to our final contender. Your name, please?

SMITHERS: Good evening.

MAGNUS: Thank you. In the first heat your chosen subject was Answering Questions Before They Were Asked. This time you have chosen to Answer the Question Before Last each time. Is that correct?

SMITHERS: Charlie Smithers.

MAGNUS: And your time starts now. What is palaeontology?

SMITHERS: Yes, absolutely correct.

MAGNUS: Correct. What is the name of the directory that lists members of the peerage?

SMITHERS: A study of old fossils.

MAGNUS: Correct. Who are David Owen and Sir Geoffrey Howe?

SMITHERS: Burke's.

Are the Fed really going to be fossilized berks in trying to fight the ‘deflationary crisis’ before last when we now face structural, geopolitical inflation?

Yes, oil continues to fall despite promised OPEC+ cuts, protestations that the Saudis can’t afford their linear city, year-round ski resort, and new footballers, and the US DOE wanting to buy “as much oil as it possibly can” for the SPR. Yet the oil-price is the Fed winning the battle of the dollar vs. commodities via higher rates. There is no geopolitical/geoeconomic room for it to slash rates: and that geopolitical backdrop is easy to interpret, and isn’t funny, even if it sounds like a Two Ronnies newsreader skit in the recent headline: ‘Miss Universe winner claimed to be at centre of alleged plot to overthrow Nicaraguan government’.

North America:


Middle East:

Latin America:


In short, if you think that’s all deflationary then you haven’t read history. Or you watch ‘news’ like this.

It’s goodnight from me. And it’s goodnight from him. 




Michael Every is the Head of Financial Markets Research Asia-Pacific. Based in Hong Kong, he analyses the major developments in the Asia-Pacific region and contributes to the bank’s various economic research publications for internal and external customers and to the media.

Michael has nearly two decades of experience working as an Economist and Strategist. Before Rabobank, he was a Director at Silk Road Associates, a strategy consultancy based in Bangkok. Prior to this, he was Senior Economist and Fixed Income Strategist at the Royal Bank of Canada based in both London and Sydney. Michael was formerly also an Economist for Dun & Bradstreet in London, covering ASEAN. 

Michael holds a Masters degree in Economics (with distinction) from University College London and speaks Thai.


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