The Fed's 50bps cut 'added fuel to the fire': Economist

Investors assess what’s next in the Federal Reserve’s ongoing rate easing cycle ahead of this week's PCE (Personal Consumption Expenditures) index print and October jobs report. Interactive Brokers senior economist José Torres sits down with Market Domination hosts Julie Hyman and Josh Lipton to discuss the Fed’s rate cut options ahead of the central bank's November policy meeting.

“The economy is doing terrific at this point,” Torres tells Yahoo Finance, adding, “The 50-basis-point reduction wasn't needed. It really added fuel to the fire.” The economist says he thinks economic data coming out this week will reinforce his view that the Fed's initial supersized cut was a mistake.

“This is a significant occurrence. It's not often that the Fed cuts, and then the ten-year yield (^TNX) jumps 70 bps [basis points]," he says, explaining that the dynamic between rate cuts and Treasury yields (^TYX, ^FVX) is impacting both lenders and borrowers alike.

To watch more expert insights and analysis on the latest market action, check out more Market Domination here.

This post was written by Naomi Buchanan.

Video Transcript

I'm curious what all this means for the Fed.

Um And what you think the fed is gonna be doing at its next meeting?

Given, you know, that, well, Josh, it seems like you, you have a, what you see is a clear picture of the economy but given the sort of noisiness and messiness, what does that imply for the fed?

Well, listen, I think the economy is doing terrific at this point.

Uh the 50 basis point reduction wasn't needed, it really added fuel to the fire.

We got some of those.

Do you think that the inflation data that we're going to get this week is going to bear that out?

Uh I think so.

I think so.

I think, you know, um the PC is a little bit stale because once we get CP I and PP I, we kind of, you know, uh and a lot of it has been, you know, really oil prices cratering and that's been a huge determinant.

We don't know how long that lasts.

A lot of global factors, you know, uh in Europe and Japan and China, they're not doing nearly as well as us, you know, in terms of economics, um, for that reason and with the long end jumping so much, right, this is a significant occurrence, Julie, it's not often that the FED cuts and the 10 year yield jumps 70 bips.

You had to see the realtors and the car dealership folks and the furniture showroom people.

They were calling me frantically because they're seeing on the headlines, fed cuts 50 basis points, but they're looking at the borrowing costs that they're working on their screens going up.

They're like Torres, what's going on, you know.

And, um, and then all of a sudden they're going from becoming real tourists and sales people to becoming yield curve analysts.

Well, luckily they can call you and say Torres what's going on and you're there to tell them Jose and thankful you're here to tell us to appreciate it.

Always a pleasure.

Thank you.