Fed may skip December rate cut, says FedWatch's Ben Emons

All right. For more on what the Fed's next steps could be, we're joined on set by Ben Emmons. He's FedWatch Advisors co-CIO and founder. Ben, great to have you with us. Good to be back. So what do you anticipate for the Fed? And what do you anticipate for rates? Because they haven't been behaving, so to speak. No, definitely not. And we've talked about this on the show before. It definitely still looks like it's going to be higher rather than lower. I think what happened today, of this week really, was not only the ISM Services Index, you said, Tim, is really, I think, a point for rates to start accelerating higher, that people price in. This policy that Trump now has a basically blanket on, because the red sweep is really giving him that, then you can expect that GDP is going to lift more, higher above 3 percent, maybe to 4 to 5 percent range in a certain period of time. So interest rates went up, not only nominal rates, but real interest rates. That combination that I typically look at, Seth told me, lots of growth being priced in. And then it's kind of taken back, because for the Fed this does mean like higher growth means higher inflation. And indeed Powell made a note of the inflation expectations, like we've got to watch that. But they're still in this mode of risk management, right, in the sense of we can't let the unemployment rate go higher either. And they keep their eye on the ball. So my sense is this Fed wants to maybe skip December, but keeps the optionality, as even Powell more or In terms of the move higher, that is built on the notion that there will be just all sorts of spending going on, especially in the Trump administration. Is that view overstated in that the guy who is now in the lead, supposedly, for Treasury Secretary Besant, he and the other guy who was in the lead also, John Paulson, they have been outspoken critics of spending, of just overspending. Elon Musk is in there. He has the president's ear, obviously. And he's saying, you know what, we can cut a lot of fat out of this government. So, you know, do you think maybe we're just sort of pricing that in too much? Maybe. I think two ways to think about it. So you have the government efficiency department, as they call it, you know, and they want to cut two trillion of spending. That was the number thrown out there. If you take that number itself, about seven, eight percent of GDP, it's a pretty significant cut. And if you look back in 2011, when we made it actually a law, sequestration, which was 10 percent of GDP, in 2012, the economy was flat on its back. So there is a, you know, I think a tradeoff here for the Treasury Secretary to consider that. On the other hand, it's the corporate tax rates and lower income taxes that somehow have to be accounted for. So I think where it comes down to is the next Treasury Secretary, once again, has to listen to this advisory committee and say, yeah, we're going to probably have to manage the deficit by issuing more long-term bonds instead of all these T-bills, and do that dynamic, which drives up rates, and try to manage the deficit that way until we grow ourselves completely out of it. And that's to be seen. We don't know that exactly. But I do think that the deficit is a key issue that this next Treasury Secretary has to address. You think of policy, you know, it's really about pro-growth, so to try to grow out of the deficit. But the Treasury Secretary has to manage it mechanically with more maturity issues. We've never had pro growth with this kind of deficit. And again, it's refreshing to think about a Treasury Secretary that will do the right thing. And I'm not saying that either of the two gentlemen mentioned wouldn't be on that track. But we all know that it's made a lot more sense to issue short and hold off on the long until the world comes down. But I want to get back to the Fed that we had yesterday. I thought I heard Powell say that, you know what, I think projections have changed since September. And where is there a surprise for markets here that you have not a Fed that's ready to hike, but a Fed that is not? I mean, I know you alluded to they'd kind of rather not do anything in December, but they're probably gonna. But I think projections have changed since September. What do you think? Yeah, I think, Tim, if you take the statement and they took out that word further in front of inflation, he dismissed that. We don't want to give them full guidance. But I think markets did look at it saying, like, you don't take that up for nothing. It's basically preparing on that. What's going to happen next year is going to change our projections. And we're going to have to start basically factoring that in into the S&P in December. And I think that you see higher projections of growth, probably somewhat low for unemployment, which is what they want. But they cannot really reconcile that with massive amount of rate cuts against it. So I think this Fed is moving towards this pace of cuts, probably slower even, based on their projections. I would think that Doppler shows us fewer cuts than what they projected in September. That would be the change. But the other thing that he did say, I want to mention last point, they do want to get to neutral not too fast. So and he did repeat that. I think that's still the case, that they want to drop rates so fast. And that's, I think, why that speaks to their projections. They're going to be stronger growth outlook. You don't have to move to neutral too quickly.