Hi YXI friends,

The December FOMC is upon us tomorrow.

To me, if the Fed doesn’t wish to change rates, they might as well cancel the meeting, given the lack of data from the government shutdown anyway. Their Dot Plot and quarterly Economic Projections may as well be throwing darts with a blindfold. However, the meeting is still on, at least to entertain the market.

We will get a rate cut tomorrow, likely with another set of dissents. Fed officials diverge widely in their perceptions of the labour market and inflation risk. Some believe that we risk higher inflation next year if rates are cut too quickly, while others think the labour market could collapse soon if the Fed sat on its hands.

Almost everyone agrees (except for Michael Burry, and good he’s not at the Fed) that the neutral rate is lower than the current Fed funds rate. I personally believe the default path is to move steadily towards that neutral rate rather than waiting forever on the data. But again, I am not eligible to run the Fed - your loss.

There is a 10-year note auction today. Judging by the latest liquidity issues and price moves, we could see a lack of demand for the 10-year, causing yields to spike once more. I wouldn’t necessarily react until we are clearer what the Fed thinks tomorrow - if that’s possible, as they may not know themselves.

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