Weekly Signal & Noise Filter
25 or 50 is The Noise
Pinebrook’s framework is to skate to where the puck is going, given the projected economic data and the subsequent Fed reaction to the realized data.
Thus, Pinebrook was able to front run the repricing of probabilities of a more aggressive Fed cutting cycle than what the market was anticipating back in the early part of this summer.
As the repricing has occurred, our focus now shifts to the next evolutionary step of the growth cycle and the Fed’s reaction function to the incoming data.
All eyes are on the Kansas City Fed’s Economic Symposium at Jackson Hole, which starts on Thursday, August 22, 2024. The big thing observers are looking out for are clues to whether the Fed will cut its policy rate by 25 or 50-basis points at the September 17th-18th FOMC meeting.
This is the noise. Why?
Recall that the conduct of monetary policy is not simply the setting of the policy rate. Rather, it is the totality of choices made to guide the economy to the Fed’s policy goals. That is, rates are a tool, but they are not the policy.
The setting of the policy rate needs to be contextualized against the Fed’s revealed preferences, its policy goals, its statements of intent, and its own economic projections (found in the Summary of Economic Projections (“SEP”)).
Therefore, the signal is in understanding the Fed’s policy framework so that we may game out their own reaction function, and skate to where the puck is going with a profitable result.
Wash, rinse and repeat, and we will have a chance at not getting run over by the market.