The Fed Finally Joins The ‘Rate Cut’ Party

Andrii Yalanskyi Chairman Powell has officially joined the other central bankers at the Jackson Hole conference who have been signaling more interest rate cuts to come, notably those in Europe and Canada. Also, the minutes from the July 31st Federal Open Market Committee (FOMC) meeting were released last Wednesday, revealing that “several” FOMC members saw “a plausible case” for cutting key interest rates by 0.25% last July. However, the “vast majority” of FOMC members agreed that “it would likely be appropriate to ease policy at their next meeting,” namely on September 18th, if inflation data continued to come in as expected. The minutes also revealed that “almost all (FOMC) participants remarked that while the incoming data regarding inflation were encouraging, additional information was needed… before it would be appropriate” to lower rates. As a result, a cut on September 18th now seems virtually certain. Economist Ian Shepherdson is estimating that the July Personal Consumption Expenditure (PCE) index will come in at 0.13% this Friday. This is the Fed’s favorite inflation indicator, and it is expected to be very close to the Fed’s inflation target. The PCE has been flat recently – 0% in May and 0.1% in June – so if the July PCE comes in at 0.1% or less, the PCE will be well within the Fed’s 2% inflation target rate. As Labor Day approaches, with the monthly jobs report coming out on the Friday after Labor Day, the Labor Department announced a major statistical “glitch” in the jobs data last Wednesday, revealing that 818,000 payroll jobs virtually disappeared in the past year (through the end of March), due to a massive downward revision, mostly due to people working multiple jobs and/or not having their taxes withheld. The BLS confirmed that only 2.08 million jobs were created, not 2.90 million, in the 12 months through March 31, 2024. This is the largest annual revision to payroll data since 2009! This massive downward revision was announced during the Democratic National Convention, but they didn’t bring it up! Another embarrassing revision is that the Biden economy is slowing down. The Atlanta Fed last week revised its third-quarter GDP estimate to a 2% annual pace, down from its previous 2.4% estimate. In addition to her huge ($5 trillion) tax increase, Harris revealed her “federal ban on price gouging on food and groceries” on the Friday before the convention, so that “big corporations can’t unfairly exploit consumers to run-up excessive corporate profits on food and groceries” But a big problem is emerging already, namely that large food producers, like Hormel (HRL) and Tyson Foods (TSN), rely on immigrant labor and actively help their immigrant workers achieve legal status in America. In other words, some of the biggest beneficiaries of the Biden Administration’s open border polices are major food processors that actively facilitate immigration applications for green cards. So essentially, the Harris campaign is threatening food companies that actively help immigrants achieve legal status. As a result, I suspect that the Harris plan to punish major food companies will fizzle as her powerful forces of political support come into conflict. The Harris team might also face problems with unions, as a rail strike in Canada commenced on Thursday as the Teamsters Union is seeking higher pay for its members. If this rail strike persists for several days, it could start to crimp economic growth in both Canada and the U.S. You may remember that the head of the Teamsters Union spoke at the Republican National Convention, but he was not invited to speak at the DNC. Conspiracy theorists may conclude that the Teamsters Union is trying to disrupt economic growth in order to help elect Donald Trump, but that would be a stretch. President Biden prohibited an impending rail strike back in December 2022, since it would have been too disruptive to the economy, so the Biden Administration has alienated the Teamsters Union, which is now wielding its influence in the elections. Overseas Challenges in Russia, Europe and Brazil Ukraine’s incursion into Russia’s Kursk region took many Russian soldiers by surprise, so both Russia and Ukraine have seized land that they can trade in the event of any ceasefire or potential peace agreement. In the meantime, since Ukraine continues to blow up bridges and railways, Russian troops are increasingly isolated. At least two nuclear plants in Ukraine and Russia are at risk, so radiation leaks and meltdowns are possible, unless cooler heads prevail. Crude oil prices remain high due to Russia’s woes, plus the potential of an escalation in the Middle East, especially if Iran retaliates against Israel for killing a Hamas leader in Tehran. I should add that Russia’s crude oil exports have declined 13% since April. In the latest week, Russia’s crude oil shipments declined by 360,000 barrels per day to 2.93 million barrels. The European Union’s (EU) tariffs on Chinese-made EVs have ended up being widely variable for different manufacturers after intense lobbying efforts and an investigation into unfair Chinese subsidies. In addition to a 10% tariff on all imported EVs, the EU has implemented a second tariff on Chinese EVs. That second tariff is now 9% for Tesla’s Shanghai-made EVs (down from 20.8%), BYD’s (OTCPK:BYDDF) is now 17% (down from 17.4%), Geely’s (OTCPK:GELYF) is 19.3% (down from 19.9%) and SAIC’s is 36.3% (down from 37.6%). The reason that SAIC is paying the highest tariffs (by far) is that they did not cooperate with the EU’s investigation into China’s unfair subsidies. On the other extreme, Tesla’s (TSLA) lower tariffs mean the EU is trying to encourage other manufacturers to build EV manufacturing plants in the EU, like Tesla is doing. As the Biden Administration keeps running up budget deficits of nearly $2 trillion per year, we should pay attention to an emerging case study of what happens when a government runs too big of a budget deficit. In Brazil, where Lula da Silva has been President for almost two years, the Brazilian real (its currency) remains weak in the wake of one of the largest budget deficits in the world, at 10% of GDP. Lula’s administration has not been able to reel in its spending, so Brazil may have to follow Argentina and devalue its currency in the upcoming years. In the meantime, the Brazilian central bank is still raising interest rates to defend the real, so Brazil’s key interest rates are now forecasted to rise to 10.5% soon. Amidst all this chaos at home and abroad, gold prices have risen 20% so far this year, surpassing $2,500 per ounce and may continue to rise as uncertainty and a lack of confidence in central banks persist. You can even buy American Eagles at Costco now, but they sell out fast (and Costco doesn’t buy back gold). Navellier & Associates owns Nvidia Corp. (NVDA), and Costco Wholesale Corporation (COST), in managed accounts, a few accounts own Tesla (TSLA), per client request in managed accounts. We do not own Hormel Foods (HRL), or Tyson Foods (TSN). Louis Navellier and his family own Nvidia Corp. (NVDA), and Costco Wholesale Corporation (COST), via a Navellier managed account, and Nvidia Corp. (NVDA), and Costco Wholesale Corporation (COST), in a personal account. They do not own Hormel Foods (HRL), Tesla (TSLA), or Tyson Foods (TSN) personally. All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc. Disclaimer: Please click here for important disclosures located in the “About” section of the Navellier & Associates profile that accompany this article. Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients. Original Post Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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