Why December’s Rate Cut Is Political, Not Effective
The market is staggering forward in a kind of speculative drunkenness. Headlines paint a simple story of “Fed cuts = market boost,” but the reality underneath tells a very different tale.
The system is entering a hangover phase where political moves, short-term speculation, and structural constraints collide with hard economic data.
1. The December Rate Cut – Political, Not Effective
1a. Treasury Yields Reveal the Truth
From October 24 to December 3, with the Fed Funds target at 4.00%, yields have moved as follows:
- 13-week Bill: –0.128%
- 5-year Notes: +0.022%
- 10-year Notes: +0.060%
- 30-year Bond (mortgage benchmark): +0.140%
If the Fed cut in December were truly system-effective, the 13-week bill should collapse toward 3.50%.
Instead, we find a reluctant drift to 3.635%. That is not confidence. That’s a forced rally.
1b. Mortgage Rates Are Ignoring the Fed
FRED 30-year mortgage (Jumbo / Standard):
- Sept: 6.54 / 6.31
- Oct: 6.44 / 6.21
- Nov: 6.46 / 6.21
Despite an October 25 bp cut, mortgage rates did not move.
The Fed lowered its rate; the real economy shrugged.
1c. Cooling Employment – ADP and BLS Outlook
ADP signals a –37k slowdown in hiring.
The weakness is broad-based and led by small businesses.
This is the only reason the Fed can politically justify a cut in December.
2. Import & Export Prices – Quiet but Critical
BLS Sept. Y/Y Data
| Category | Import Prices | Export Prices |
|---|---|---|
| All commodities | +0.28% | +3.80% |
| Excluding fuels | +0.77% | +3.75% |
| Foods, feeds, beverages | -0.97% | +5.17% |
| Industrial supplies | +1.08% | +5.82% |
These figures show:
- The U.S. imports goods that do not push CPI higher.
- The U.S. exports goods that inflate other countries’ CPI.
- To protect real purchasing power (wages, PCE), price pressure moves to domestically produced goods.
- Export prices rising too far risks lower global demand, weaker GDP, and softer industrial production.
3. USD Reaction – A Pause, Not Strength
The dollar’s rise from 1.15 → 1.16 (EURUSD) ended flat after the December rate-cut announcement.
The key signal:
No upward movement in 2Y–30Y U.S. yields.
This indicates the real issue:
The market does not want U.S. debt at lower yields.
Demand for new Treasury issuance is strained.
A political cut only makes this harder.
4. Conclusion – The Market’s Hangover Phase
The December 25 bp cut is coming, but it will be:
- political, not effective
- designed to aid a cooling labor market
- delayed in impact
- no more visible than the October cut
Real rates remain high. The system remains complex.
The solution is not cowboy policymaking.
Meanwhile the market continues its post-speculation hangover—very similar to the year 2000.
Everyone knows tech can tolerate these rates.
And because of that, the market does not want, cannot, and must not fall.
But later, as liquidity tightens and global demand softens:
the black swans will arrive.