This should be no surprise. I’ve been hinting at this for months. The yield curve was inverted and it MUST un-invert, which it finally did this week.
I’ve personally felt that this switch in Fed thinking about 2025 was definitely going to happen because inflation data is still a bit high and the economy is still relatively strong. But things will likely change next year, and create new Fed views.
If you dig deeper into the inflation data from the most recent report, it’s actually very good. Most categories are down into the 2% range. That leaves the incoming administration as the main influence for the economy and inflation.
There is a ton of uncertainty over that. Trump has been throwing out all sorts of policies. My personal opinion is that excess government spending is the main inflationary item, so even if Trump uses tariffs and other inflationary policies, it will be offset by significant cuts in government spending, leading to a slowing of the economy and less inflation pressure.
But because his policies are so radical, it could have very unintended effects, such as re-ignition of inflation. If I were a home buyer I would buy now. Why? Because not owning a home in a higher inflation environment is a financially very bad decision. Two, rates could end up higher to fight unintended inflation. Three, even if you lock in higher rates now, you can refinance later. This unidirectional option is a powerful financial tool for borrowers.
In the tech company discussion above, tariffs aren’t the main influence on employment. All tech companies keep excess employment during good economic times. Why?
They are hitting their numbers and want to spend money on various less critical projects and products to drive future growth. When times get tough, they all cut. It’s a formula used by every single tech company out there.
For those companies that are growing spectacularly, obviously they don’t reduce headcount, but they do slow hiring of planned growth. That could be the scenario with Apple. Austin has priced in the opening of the Apple campus and a certain number of employees. That growth plan may change.