Everything You Need To Know About The Fed’s Meeting | Danielle DiMartino Booth

Episode Summary

Executive Summary: The discussion centers on the Fed’s December meeting, with Danielle DiMartino Booth arguing Powell will stay resolutely hawkish despite a likely 50 bps hike. She highlights widening internal dissent, a looming labor-market slowdown, sticky shelter inflation, QT still tightening conditions, and growing recession risk across housing, autos, consumer spending, and private markets.

Main Topics: December Fed meeting and Powell’s stance (Priority: 5/5): The conversation focuses on what Powell will signal at the FOMC meeting, especially whether he remains resolutely hawkish, keeps optionality, and avoids giving forward guidance on February moves. Dot plot, dissent, and FOMC power dynamics (Priority: 5/5): They discuss the Summary of Economic Projections, wider dispersion in the dot plot, potential dissents from departing voters, and how Powell’s coalition of doves/hawks shapes policy. Inflation outlook and policy path (Priority: 5/5): The guests debate whether the Fed can continue hiking 50 bps, how sticky shelter inflation and food/rent expectations remain, and whether the terminal rate should rise above 5%. Labor market deterioration (Priority: 5/5): DiMartino Booth argues jobless claims, job-cut data, and job postings are weakening faster than headline unemployment suggests, implying Powell may be underestimating labor slack. Recession signs in housing, autos, and spending (Priority: 4/5): The discussion covers falling home prices, rising listings, weak car demand, soft holiday spending, and the reversal of the wealth effect as evidence of an economy entering recession. QT, liquidity, and private-market fragility (Priority: 4/5): They emphasize that quantitative tightening is still draining liquidity and could eventually stress securitization and private capital markets, especially private equity and private credit. Bank CEOs and macro narrative shift (Priority: 3/5): The guests note a change in tone from major bank CEOs toward recession warnings, interpreting this as evidence that credit losses and slowing demand are becoming visible on the front lines.

Key Arguments: Powell is likely to remain more hawkish and resolute than markets expect, using the press conference to preserve optionality rather than explicitly signaling February. The Fed’s dot plot could show rates above 5% in 2023, implying more hikes than the September projection and signaling persistence into 2023. Internal Fed dissent may increase as rotating voters change and departing hawks/doves issue final dissents; the dispersion of dots matters as much as the median. Jobless claims, layoffs, and job postings are deteriorating quickly, while headline unemployment still lags; Powell may cite outdated labor data to justify hiking. Core inflation is likely to ease on headline CPI because of energy, but shelter and rent inflation remain sticky enough to keep the Fed on a tightening path. QT is underappreciated and could matter more than small rate hikes; balance-sheet runoff continues to tighten financial conditions even if markets focus on the funds rate. Housing, autos, and consumer spending are weakening sharply, and a reversal of the wealth effect could hit high-end consumers hardest. Private equity/private credit are vulnerable if the Fed refuses to pivot, because mark-to-market pressure could expose losses in a $1.4T sector tied to pensions and political influence.

Data Points: Fed policy meeting: Wednesday, 2:00 p.m. statement; 2:30 p.m. Powell press conference - Timing of the FOMC release and press conference discussed at the start Expected December hike: 50 basis points - The conversation assumes the December meeting likely delivers another 50 bps increase Current policy rate after expected move: 4.25% - Projected high after a 50 bps hike from the prior range September 2023 dot plot high end: 4.75% to 5.00% - Referenced as the prior peak projection range for 2023 Potential December 2023 dot plot: Above 5% - DiMartino Booth expects some dots to move higher than 5% Core PCE: 5% - Used to argue there is little macro justification for rates far above 5% Headline CPI forecast: 0.3% m/m and 7.3% y/y - Market/consensus estimate discussed for the upcoming inflation release Unemployment rate: 3.5% to 3.7% - Headline labor market remains low even as underlying indicators weaken Job openings: 10.0 million to 10.3 million - JOLTS figure cited as evidence that headline slack looks large Initial jobless claims: Positive in 24 states representing 51% of U.S. population - Year-over-year claims turning positive was cited as an early labor-market warning State coverage of rising claims: 74% of U.S. population by Jan. 1 (projected) - Projection based on additional states flipping positive in claims data Small business closures: 131 in November; 89 in first 12 days of December - DailyJobCuts.com data used to show worsening labor conditions Business income tax refunds: $135 billion over 10 months - Described as a significant liquidity injection supporting spending and travel Holiday spending: Down year over year - Bank of America data showed weakness in holiday goods spending over Black Friday/Cyber Monday California stimulus checks: $1,000 to about 22 million Californians - Explained as a temporary boost to California consumer spending Unemployment expectations in Michigan survey: 45% in early December - Last comparable rise was December 2007 at 47% Housing listings: Up 15% year over year - Redfin data used to illustrate weakening housing conditions Home price index: Case-Shiller up 17% y/y three reports ago; now negative y/y - Shows one of the fastest reversals in housing prices Blackstone/private credit issue: $1.4 trillion industry, 68% owned by U.S. public pensions - Used to illustrate fragility in private markets if mark-to-market pressure increases

Pivotal Quotes: "He'll have a very clear view, and he's committed to doing what the law requires, which is bringing down inflation." — Randy Quarles (as quoted in the transcript): Cited as a breadcrumb suggesting Powell will be more resolute than markets expect "The wider the disparity of those dots, the higher the probability that into 2023, Jay Powell is going to be a man fighting dissents." — Daniel DiMartino Booth: On the significance of the dot plot and rising internal disagreement at the Fed "I think the greater risk, Jack, is that it stays there after the meeting, after the press conference, that it doesn't come down." — Daniel DiMartino Booth: On the market’s terminal rate staying near 5% even after the meeting

Implications: Listeners should expect a hawkish Fed, weak but lagging labor data, and continued financial tightening via QT. The bigger risk is recession pressure spreading from housing and autos into jobs, spending, and private capital markets.