Hmm…curious change building worth watching next few weeks. Few are aware but there has been a long-term correlation of Fed Funds Rate(FF) and the Discounted T-Bill Rate(DTB3) with the Fed following within a few weeks whenever the DTB3 has shifted enough above or below the FF. With the drop in crude prices, investors immediately begin to anticipate a decline in inflation expectations and the DTB3 declines accordingly. This has now declined in a short period by 10bps to 3.99%. Another drop of 11bps brings DTB3 to 3.88% which removes pressure for the Fed to make any additional adjustment. Should crude prices decline even more as the administration claims is likely post-Mid-Terms, the DTB3 will decline and the Fed Rate goes under pressure for a decline. This is worth watching!
My guess at this point is a rate decline in mid-2027, but this will be dependent on crude prices for this rapid shift to decline from the recent rise. Manufacturing production build out removes crude pressure on the supply chains due to lower crude expense in global supply chains. That is, lower supply line transportation cost results in lower overall manufacturing cost. This will translate into lower overall production prices and likely some deflation. Net/net this could prove beneficial for US housing market should mtg rates decline with a decline in inflation. All this bares close watching but provides intriguing fodder for higher equity prices and even further economic expansion.
