Bank of Canada Rate | Page 4 | General financial discussion | Discussion forum

Remember that the Fed is the supply of money, a commodity. The Fed is a business. It is not the government. The market prices in based on supply and demand. The market will determine its own direction, taking cues from all relevant sources.

Historically, the Fed rarely lets the rate be more than 25 pts from the 3-month bond rate, and more than 50 pts than the 6-month bond rate, at their announcement meetings. If the market moves much farther than that, the Fed is compelled to reduce that gap, as it otherwise negatively impacts their balance sheet.

The last time it was more, was during the 2007/08 crisis, and the Fed tried to make more conservative changes, but had to relent quickly because the markets were moving too far too fast (likewise in earlier periods).

Currently, the 3-month rate sits a hair above 5%; the 6-month rate just shy of 4.75%. There are still 11 more days until the next rate announcement and at the current trend, the market is highly likely to continue its move down, increasing the gap. As it stands, I would say there is at least a 75% chance of a 50pt drop, increasing probability if the trend continues, and if enough of a move down, a larger drop. That's my take on what I see.

Meanwhile, here are a couple of articles to consider:

What has the Fed done in election years? (JP Morgan)

Social mood governs the actions of investors and central banks (EWI)

Yup... and 80% of all statistics are just made up... 😉

I’m still undecided, it’s still the unanswered chicken or the egg question?

mordko said
The future is always a probability. Probabilities have been shifting over the last week because of employment data trickling in. And the Fed did have a choice, they alway do and sometimes they make the wrong one. Ultimately its the economic data that drives all decisions as well as markets, just like this time

The interesting point here is that on September 6th the market gave the highest probability to a 25bp drop so whatever smayer claims to be “the market” isn’t.  

Smayer’s claim that the market dictates Fed goes 50 is simply wrong.
Market never price in more than 50% chance, at best a guess.
The Fed makes the call, always has, always will. Mkt does not even guess, they follow the Fed’s guidance, plain and simple.

In an election year, Fed does not want to add jitter to the market close to the November election, hence prefer to start with 50 this meeting. If goes 25 now and then follow by 50 at the next meeting may send a wrong message to the market and mess around with the election.

Well, if you take a closer look at the short-term bond market charts, you can clearly see the market was pricing in a significant downward trend and change at least since Oct 2023, and started turning even before that, as far back July 2023. That is objective truth. And these moves are long before the CBs were indicating changes were coming for downward movements. In fact, their language was repeatedly the opposite.

I always base my perspective on hard facts. Charts are hard facts, not opinion. This is to say that I am always open to reassess my perspective if hard facts are presented. So, actually, it is not hard to prove me wrong, if you have the objective facts.

If you can present clear presentation of the CBs indicating that they were going to start lowering rates, as far back as July 2023, I'll definitely weigh that in. But all my sources have objectively shown the opposite... that the market moves based on the participants' analysis. The CB surely does its own thing BUT market pressures seem to be the driving force behind their decisions, regardless of how they spin their comments. The comments are ultimately politicking, as has been pointed out by others, but that is a completely different matter.

The charts tell you what people actually do, not what they say they want to do. And the markets are always leading, as per the price action on the charts.

So, if you do not agree with me, no problem. Prove me wrong... should not be that hard.

P.S. and like I said before, 80% of all statistics are just made up (let that sink in)... so pushing a stat like 50 or 60% probability of a certain move one way or the other is, well,... just that.

mordko said
Of course markets price more than 50% chance for rate predictions. As they did yesterday (60% of a half point reduction, which was a change from 60% for a quarter point reduction a few days ago). 50% isn’t some magic probability that cannot be exceeded. You are in the finance industry, right?  

I dont even think u understand what 50 vs 60 vs 100 means.
Or what is being used to get number. Its math.

Socionomics is a fringe concept that has its followers but also its detractors as noted in https://www.investopedia.com/terms/s/socionomics.asp People need to judge for themselves. The Socionomics Institute https://socionomics.net/what-is-socionomics/ is closely associated with Robert Prechter who has followers of his YouTube vids. It is thus highly biased in favour of the theory. As always, one must take things with a grain of salt.

Prechter is a charlatan, as are all pundits who predict the future with absolute certainty.

Here he is predicting a market disaster on a scale exceeding 1930s and telling people to move into short term government notes.

Gilburt: Where do you suggest people “hide” during this event for financial safety, and why?

Prechter: Short-term notes of the least unstable governments, held in the safest manner possible. The plan is to trade those investments for stocks, property and precious metals near the bottom. You can be calm and avoid suffering financially if you’re prepared. The trick to maintaining personal prosperity is to avoid popular investments at the turns. It’s not easy to do, but at a minimum, you need a fractal perspective on social trends as opposed to a linear one.

https://www.marketwatch.com/story/legendary-technical-investor-robert-prechter-is-awaiting-a-depression-type-shock-in-the-us-2017-04-21

The article is from April 2017 when S&P traded at 2300. Today it traded at 5718, suggesting 150% in capital gains not counting dividends.

Here is another great quote from the same article:

Robert Prechter: The true top for stocks in terms of real money (gold) occurred way back in 1999.

This one is interesting because his claim had already been demonstrated to be false by 2017. Suggests his theory is a religion which disregards facts whenever reality disagrees with his dogma.

BTW, if it has not been obvious yet, the market is positioned such that you can be 100% sure that both BoC and the Fed will reduce the rate by 25 pts. The BoC decision is 3 weeks away, and the Fed decision is over 5 weeks away, so time will tell if more room will be made.

I just got my RRIF set up before the rates could drop any more!