Rate Cuts on the Way

Federal Reserve Chairman Jerome Powell announced an anticipated rate cut at the upcoming September 18 meeting, with futures markets predicting a 25 to 50 basis point reduction. However, the focus should shift from interest rates to the rate of growth in M2, significantly influenced by the Treasury's management of its $730 billion Treasury General Account (TGA).

The recent decline in M2, rather than low short-term rates, is attributed to the slowdown in inflation, reflecting a possible alignment with Modern Monetary Theory where the Treasury can manipulate liquidity. The effectiveness of rate cuts is under scrutiny, as M2 growth remains stagnant and may result in slower near-term economic growth.

Additionally, the housing market may not see a rebound, as potential buyers could delay purchases anticipating further rate cuts. Concerns arise from government-driven economic growth amid negative money supply trends, suggesting a precarious balance may reignite inflation.

Market reactions include a surge in gold and Bitcoin, indicating skepticism about inflation control.