GM. This is Milk Road Macro, the newsletter that cuts through the noise like the Fed just cut rates—gently, but with big market vibes.
Here’s what we got for you today:
- ✍️ Everything you need to know about the Fed meeting
- 🎙️ The Milk Road Macro Show: What Do Fed Rate Cuts Mean For Markets w/ Mike McGlone
- 🍪 US retail sales beat expectations in August
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EVERYTHING YOU NEED TO KNOW ABOUT THE FED MEETING
The Fed’s cutting cycle has officially restarted.
We saw a 25bp rate cut on Wednesday - the first cut since December 2024.
But this wasn’t the biggest story.
Markets came into the meeting already expecting a dovish pivot.
Roughly three rate cuts in 2025 (including September) had already been largely priced in.
So this meeting was all about whether the Fed could live up to the already dovish expectations.
So were expectations met?
What did we learn from the Fed meeting?
And what does it all mean for asset markets?
Let’s take a look…
Two more cuts this year?
Alongside the interest rate decision, we saw the Fed committee’s updated policy statement.
The changes to the statement noted that job gains have “slowed”, unemployment has “edged up”, and inflation still remains “somewhat elevated”.
Meanwhile, forward guidance was altered to remove reference to the “extent and timing” of future rate adjustments, suggesting that a relatively rapid lowering of rate is now on the cards.
Most analysts agree that the small changes to the statement leaned dovish.
When interpreted through an AI LLM (Large Language Model), the Fed statement comes out as the most dovish since 2021, according to Augur Infinity.
We also got an update to the Fed’s “dot plot”, where members forecast how many cuts they think will happen in the future.
The dot plot shows the most favored outlook (9 dots) signalling two more cuts this year - in line with market expectations.
But it also shows how fractured the FOMC voting board is - with nine other members expecting one or fewer cuts for the rest of 2025.
Can you guess who put their dot very low (indicating a jumbo 50bps cut at every meeting this year)?
(This was the first meeting that “Trump’s man” Stephen Miran, the newest Fed Governor, voted…)
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EVERYTHING YOU NEED TO KNOW ABOUT THE FED MEETING (P2)
“Hawkish” Powell press conference?
The main takeaway is that the Fed now appears to be firmly back in a “cutting cycle” and is likely to continue to cut rates.
However, Fed Chair Jerome Powell still managed to dampen the vibes a little bit…
Getting nerdy with the small details of the meeting, my read on Powell’s press conference was that it was slightly hawkish (relative to expectations).
He said: “You can think of today’s move as a risk management cut”.
He also said: "There are no risk free paths now. It’s not incredibly obvious what to do".
And he added that the Fed was still in a “meeting by meeting situation”.
In simple terms: Powell personally wasn’t confident enough to firmly stand by any future rate cuts.
I think it’s also worth highlighting one important comment from Powell relating to the lackluster recent job growth data we’ve seen.
There are some analysts and commentators that have pointed to falling job growth numbers as a sign of a big overall growth slowdown, or even imminent recession.
However, as I’ve outlined previously, this low job growth rate could be largely due to a collapse in immigration numbers, meaning population growth is a lot lower than it once was (maybe even negative).
This means the “breakeven rate” for job growth for a healthy economy might be a lot lower than it once was.
And Powell appeared to agree with this theory, commenting that the breakeven monthly job growth rate might be anywhere between 0 and 50,000, in his view.
The takeaway here is that low job growth numbers in the months ahead may not necessarily be a concerning sign for the overall health of the US economy.
How did asset markets react?
In many ways, the overall outcome of this meeting was already priced in.
This explains why most risk asset markets wiggled around a little bit but finished the trading day mostly flat.
Here’s the price action (rate decision and press conference in red):
At the time of writing, major US stock indices and bitcoin have started to move higher again.
“Running it hot”?
Let’s step back and look at the wider picture.
To me, one thing is clear moving forward…
The Fed is “running it hot”.
This is not a typical “let’s start cutting rates” environment.
You’d generally expect the Fed to be cutting rates into an economy with slowing growth and falling inflation.
My view is that the overall US economy is "resilient" at worst, and likely reaccelerating into Q4 (even though the labor market might be cooling).
Inflation is moving up - and this meeting was the first time since the 1990s that the Fed has cut rates with Core PCE (inflation) sitting at 2.9%+.
Meanwhile, real-time US GDP growth estimates look great - zero signs of any kind of slowdown here.
In this type of “running it hot” scenario, rate cuts are just small bursts of ongoing added stimulus for an already good economy.
And are likely to be good news for risk asset prices.
However, the risk is that the economy “overheats” further down the road - and inflation becomes too much of a problem.
You don’t need to take my word that the economy is resilient.
This week we also saw an update of the Fed’s own Summary of Economic Projections (SEP).
These projections give insight into how Fed members are seeing growth and inflation shaping up ahead.
The SEP shows:
- Median real GDP revised higher
- Median unemployment revised lower
- Median PCE (inflation) revised higher
Which begs the question - why are they even cutting rates in the first place?
Wrapping up
Coming into the Fed meeting, the market was expecting a dovish pivot, with three rate cuts priced in for 2025.
We got the first cut, and the meeting as a whole largely lived up to the market’s expectations.
Powell tried to ruin the party in the press conference - appearing a little bit more cautious.
But the main takeaway is that we’re firmly back in a cutting cycle - and this is likely to be good news for risk asset prices moving forward.
That’s it for this edition - catch you for the next one.
GOLD’S SURGE IS A WARNING SIGN 🚨
In today’s episode, we sat down with Mike McGlone to talk about why the Fed’s latest rate cut might be the start of something far more dangerous than a soft landing.
Here’s what you’ll hear:
- Why McGlone says this cut is not a pivot, and could mirror 2001 or 2007
- The hidden danger in gold’s 40% rally (hint: it’s not bullish)
- Why copper’s breakdown could be the ultimate “game over” signal
- Bitcoin’s underperformance and the “liquidity accident” nobody’s ready for
It’s a banger of an episode, don’t miss it 👇
YouTube | Spotify | Apple Podcasts
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US retail sales increased by more than expected in August - the third straight month of solid gains in sales. "The American consumer appears to be in good spirits - that's good news for the economy”, said one strategist.
Trump’s efforts to rewire global trade and pressure the Fed are prompting investors to trim their exposure to US assets. That’s according to investment consulting firm Mercer LLC, which says clients have been switching money from the US to Europe, Japan and elsewhere.
Chinese firm Huawei unveiled a new AI chip roadmap as it plans to challenge Nvidia’s dominance in the space. “This is a significant milestone in China’s long march of the AI chipset industry”, said Charlie Dai, vice president at Forrester Research.
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