Going to see more dissents than ever at upcoming FOMC meetings, says Peter Boockvar

Here's a summary of the provided YouTube video transcript:

Key Concepts:

• CPI (Consumer Price Index): A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
• Government Shutdown: A situation where non-essential government functions cease due to a failure of Congress to appropriate funds.
• Federal Reserve (The Fed): The central banking system of the United States, responsible for monetary policy.
• Interest Rates: The cost of borrowing money, often influenced by the Fed's policy decisions.
• Fed Funds Futures: Financial contracts that allow investors to speculate on the future direction of the federal funds rate.
• Beige Book: A report published by the Federal Reserve that describes current economic conditions in each of the twelve Federal Reserve Districts.
• Labor Market: The supply and demand for labor, encompassing employment levels, wages, and job creation/loss.
• Inflation: A general increase in prices and fall in the purchasing value of money.
• Yield Curve: A graphical representation of the yields of bonds with different maturities.
• Monetary Policy: Actions undertaken by a central bank to manipulate the money supply and credit conditions to stimulate or restrain economic activity.
• Dissent: Disagreement among members of a decision-making body, such as the Federal Reserve's Federal Open Market Committee (FOMC).

Impact of Government Shutdown on Inflation Data

The Bureau of Labor Statistics (BLS) announced that the October Consumer Price Index (CPI) report will not be released due to the government shutdown. Consequently, the November CPI report will be delayed by one week, with its release now scheduled for December 18th. This absence of government-issued inflation data leaves the Federal Reserve without crucial information before its next policy decision on December 10th.

Federal Reserve's Stance and Data Reliance

Peter Boockvar, CIO at BFG Wealth Partners, discusses the implications of this data void for the Fed's decision-making. He highlights the significance of New York Fed President John Williams' recent speech, suggesting it signals a higher likelihood of an interest rate cut. Boockvar believes Williams, as the New York Fed President and a voting member of every FOMC meeting, would not have delivered such remarks without the knowledge and implicit approval of Fed Chair Jay Powell. This interpretation is supported by a notable movement in Fed Funds Futures.

While acknowledging the importance of official government data, Boockvar points out that the Fed has other sources of information. The Fed's Beige Book, for instance, provides extensive insights into economic conditions across various sectors. Therefore, the Fed is not "flying blind" and can still assess the economic landscape. The decision to cut rates will likely depend on their assessment of the labor market's weakening and their concern level regarding inflation. Boockvar anticipates increased dissent among FOMC members in upcoming meetings, particularly until a new Fed Chair is appointed.

Concerns Regarding the Labor Market and Inflation's Role

The conversation shifts to the job market, with recent announcements of layoffs from significant companies affecting mid-level workers and engineers. This raises concerns about a potential weakening in the labor market, prompting a question about whether the Fed's focus is shifting from inflation to employment.

Boockvar argues that inflation itself is a contributing factor to pockets of economic weakness and concerns about the labor market. He explains that inflation, at 3% or more, acts as a depressant on consumer behavior, especially for lower to middle-income households, which in turn impacts the economy and subsequently the labor market. While high-profile layoffs from large corporations are visible, Boockvar notes that job reductions and hiring slowdowns initially began with small and medium-sized businesses in April. The current trend with larger companies warrants close attention.

The Delicate Balance and Yield Curve Dynamics

Boockvar emphasizes the delicate balance the Fed is navigating. He makes a critical observation about the yield curve: while the Fed may cut short-term interest rates, long-term interest rates are not declining, a trend also observed in Europe. This means that even with a potential rate cut, individuals seeking to buy homes may not experience any relief in mortgage rates if the 10-year Treasury yield remains elevated.

Decision-Making Scenarios and Consensus Building

In response to a hypothetical scenario of a divided FOMC vote (e.g., five for a cut, five for steady, and others with different opinions), Boockvar suggests that Fed Chair Jay Powell would likely be the deciding vote. However, he reiterates that Powell and his predecessors have historically prioritized building consensus. Boockvar believes Powell already has sufficient votes to achieve his desired outcome, citing support from governors like Bowman and Waller, and now President Williams. If Powell intends to cut rates, he has the necessary support.

Synthesis/Conclusion

The government shutdown has created a data blackout for the Federal Reserve, impacting its ability to assess inflation before its December 10th decision. However, the Fed has alternative data sources and is likely signaling a potential interest rate cut, influenced by concerns about a weakening labor market and the ongoing impact of inflation on consumer behavior. The Fed faces a delicate balancing act, with long-term interest rates not mirroring short-term rate cut expectations. While dissent is anticipated, Fed Chair Powell appears to have the consensus to implement his preferred monetary policy.