Markets are pricing in 3 cuts for the year (including today’s). I still think 75 bps could be in the works, but 50 bps is a lock unless we get some positive jobs results, which I’m not yet seeing signs of.

For the end of next year, the dots median fell to 3.375% (from 3.625%) – in line with our belief that the Fed will have to move faster than previously thought (I still think we get there sooner than the market is currently pricing in).

The terminal rate did not change – median of 3% and average of 3.12%.

Powell mentioned “known” issues with the birth/death model! Wow, FINALLY! We have been arguing that with the “gig” economy, the ease with which you can create an LLC, etc., has changed the nature of EIN (Employment Identification Number) applications. Each EIN issued does NOT coincide with the number of jobs attributed to it (they did at one time, but not for years). Hence all the adjustments. As a reminder, from April through August this year (not touched by the big revisions of last week), the birth/death model says that the net number of jobs between companies being created (birth) and those going out of business (death) is 963k! Total NFP jobs created for that period is 265k. If the birth/death model still overstates jobs (and I think it does), have we actually lost jobs since the end of Q1? I think it is possible. The much-maligned (rightfully so) Household Report shows -114k jobs during that period. That is why I’m still willing to bet that the Fed has to cut faster than what the market is pricing in.

The Fed is still behind on jobs because the data is behind on jobs.

Powell killed the question on the “third mandate” of stable long-term bond yields.

I still expect that we will see operation twist – selling short term Treasuries to buy longer maturity Treasuries (even as the Treasury is also buying bonds). Will they “twist” into mortgages or do something similar with their mortgage portfolio? I think that would be stage 2, but it’s another reason to like mortgages. First the admin tries to “fix” yields – 10s briefly got to 3.99%, and I think they will get back there. Then you “fix” spreads, but first you fix yields, but also expect mortgage yields to continue to decline as the admin tries different ways to achieve that stated goal.

They tried to steepen the curve but couldn’t. I continue to think that we’ll see flatter curves in the coming days.

From the weekend report, Ra Ra RasPUTIN, we touched on the one “surprise” that no one is talking about – the possibility of Europe seizing Russia’s frozen reserves and using that instead of debt issuance to pay for weapons.

I’m fighting the “sell the news” reaction, especially in bonds!

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