And brewing among Fed Reserve officials on the future path of monetary policy.
This does come as cracks appear in the labor market.
Fed Chair Powell reiterated on Tuesday that the central bank will proceed cautiously on further rate cuts, though he did leave the door open for more easing.
Now Powell also describes stocks as fairly highly valued.
Wall Street now looking ahead to. release of the Fed's preferred inflation gauge.
And joining me this morning at the New York Stock Exchange is Jose Torres, senior economist at Interactive Brokers.
Jose, good morning.
Great to have you here.
Good morning, Remy.
Great to be here.
Well, it's been busy on Fed officials speak this week, but this does come on the heels of the September Fed meeting, so we got that rate cut as expected by 25 basis points, but we're getting a.
Of economic data.
So what do you expect for the central banks?
Well, I'm expecting, great to be here.
I'm expecting a few more rate cuts, but there's a lot of division amongst the committee, you know, they're worried about inflation.
I think for the wrong reasons because we're really seeing inflation come from services which is driven by strong consumer demand.
In fact, this morning we got that GDP revision, huge upgrade.
Big consumer spending, business investment also in the durable goods report was very strong last month, 2nd consecutive print.
So what I'm seeing here is a re accelerating economy.
We also saw jobless claims well below expectations, 2 18,000.
So I think the Fed is here worried about tariff fuel price pressures, which I don't think they're going to come in the future, but that's what officials in the committee are worried about.
And then also this strong economy with a strong economy, you tend to have some stronger inflationary pressures because servicers, they have pricing power.
Consumers are buoyant in the first half of the year.
It was turbulence.
You're worried about trade, you worried about financial market volatility, but now the consumer sees low unemployment, supporting the low and middle income cohorts, and the capital markets have been terrific.
So that's really been helping the upper income cohorts, and I'm expecting growth to really pick up into the back half of the year.
Yeah, and I'm glad you touched on the growth figures because we got the revision to the latest quarter here in the US for growth, and we did see 3.8% GDP, which was an upper revision.
And of course, as you mentioned, this does come as consumer spending increased as well and those durable goods orders also gave us a better picture of what's happening in the economy.
So when we're looking ahead, what does this mean for the American consumer out there?
I think the American consumer is in really great shape, you know, when you consider the fact that the labor market is stable, you know, it's decelerating.
Hiring is slowing significantly, but we're not seeing layoffs pick up that much.
We've got to see that 4 week moving average start to tick up north of 250,000 for a few weeks to then really become worried.
And then the markets have been really strong, so that's really helping everybody in terms of Participation.
I'm looking now for the Russell 2000.
Made a new high a few days ago.
I'm looking for the Russ 2000.
They are most levered to domestic economic conditions, and they benefit disproportionately from rate cuts.
I'm expecting, you know, inflation, we get the numbers on Friday.
I'm expecting 2.7%, so you're in the mid to high 2s on inflation.
You're not at 2%.
Uh, the Fed's target, but labor conditions, hiring are really, you know, it's solid, but it's the trend is lower, so we've got to be careful there and for that reason I think the Fed should cut a few more times.
I don't think 150 basis points by your end.
I don't agree with that.
Degree of reductions, but I think you know a few quarters from now through January putting us you know in the threes on Fed funds, I think that's a prudent policy.
Yeah, and Jose looking forward, we are about to enter the final quarter of 2025, but before that we had that government shutdown deadline and we've been hearing about what could potentially happen and we like to say this time it is different, but is it really?
You know, these things, they tend to go down to the wire.
Our prediction market has live real-time odds on the probability of a government shutdown on October 1st or a partial or a full, roughly around 60%.
So you know, probably probable, probably it is going to happen at least in some form.
It's a big risk for markets.
Remember when we had that big government shutdown back in.
In 2011, you know, the markets went down around 11%.
So you know there's a risk that a government shutdown.
It seems like the Republicans and the Democrats don't want to get along.
The main sticking points are Medicaid cuts, you know, Democrats want to pay a lot of that back and then of course the extended healthcare insurance subsidies as well.
Those are the main sticking points and they don't, it doesn't look like there's any middle ground, but it's still early.
Because these things go down to the wire, you know, and our customers, you know, somewhat of a read on the consumer, albeit they're much more sophisticated, you know, they've been very excited buying stocks, buying the dip, crypto has been huge, call options and forecast contracts really been attracting 5 different groups of people investors, hedgers, speculators, market makers, and arbitrars and they've really been.
Enjoying all the economic indicators we have GDP, retail sales, employment, a lot of the crypto things that are going on, as well as the government stuff like government shutdown, what the corporate tax rate is going to be, what Social Security is going to be, etc.
But you know our customers have been very buoyant.
We've been seeing accounts continuing to grow and very, very active.
OK, Jose, well, we will have to leave it there, but as always, great having you on the show.
Thank you so much for joining us today.
Thank you for having me.
Appreciate it.
Thank you.
