The possibility of an interest rate hike is “the most underpriced risk in the market right now,” Breitbart Economics Editor John Carney told Fox Business host Larry Kudlow in a Monday interview.
Kudlow noted that Monday’s Institute for Supply Management (ISM) survey of business executives, like Friday’s blowout jobs report, shows the economy heating up and thus calling into question Wall Street’s hopes for multiple interest rate cuts this year from the Federal Reserve.
“While we’re talking about the economy being too strong to cut rates, we got an ISM services number today that was a very strong number,” Kudlow noted.
“That’s right. It was much hotter than expected,” Carney said, noting that Monday’s survey showed “the largest month-to-month price increase from December to January in 12 years.”
As Carney reported for Breitbart:
Two measures of the services side of the economy indicated on Monday an increase in activity in January.
The Institute for Supply Management’s survey of business executives signaled a 13th-month of expansion for the services sector in January. Its purchasing managers index climbed to 53.4 percent, topping Wall Street’s expectations for a reading of 52.1.
The rise more than reverses the December decline, which saw the index fall to 50.5, the lowest level in seven months. This is the highest reading since September’s 53.6, when the overall economy was expanding a a 4.9 percent annualized pace.
A similar measure from S&P Global was also stronger than expected. The S&P Global PMI for the U.S. services sector suggested the fastest pace of expansion since June 2023.
New orders, a key measure of demand, rose at a faster pace. Demand improved from domestic customers as well as demand for exports, which rose at the steepest rate since August of last year.
“So, this is inflation reaccelerating, which we shouldn’t be surprised [by] when we just saw the jobs report come in that told us that we had added 353,000 jobs,” Carney told Kudlow. “When you’re bringing that many people into the workforce on the payrolls, of course demand is increasing.”
“What are the odds, which no one is talking about, that the Fed’s next move is a rate hike?” Kudlow asked.
“I think they’re a lot higher than zero, which is what the market is priced in,” Carney replied. “It’s the most underpriced risk in the market right now. I think there is a good chance if inflation continues to heat up and we get jobs numbers like we saw January that the Fed does have to hike. I think the earliest they’re going to cut, by the way, is July. Then they have to take September off because if they cut right before the election, that’s a big problem. Maybe if inflation stays calm, the cut again in November and December. That’s three cuts. The market has like five right now. They’re not going to do that.”
“He’s not going to cut rates until the morning of Trump’s inaugural,” Kudlow quipped.
Carney suggested that concerns about the politicization of the Fed have been acerbated by the manner in which Fed officials are presenting themselves to the public.
“I think the Fed has made a mistake and Powell specifically,” Carney argued. “One: going to these press conferences every single meeting, I don’t think it’s a good idea. Two: standing up at a podium as if he were an elected official is a mistake because he’s out answering questions like an elected official, and then going on TV and doing like a more personable interview like an elected official. This is going to actually politicize the Fed because the more they act like political officials the more people are going to treat them like that.”
Rebecca Mansour is a Senior Editor-at-Large for Breitbart News. Follow her on X at @RAMansour.