Rate-Cut Triangulation
Combine policy guidance, market hedges, and economic data before forecasting
- Difficulty
- Advanced
- Time to result
- ~ongoing to results
- Steps
- 6
- Confidence
- 90%
Begin with the Federal Reserve's own projections as the official baseline, then compare them with fed funds futures and the direction of incoming economic data. Interpret futures carefully: institutions may buy contracts to hedge losses elsewhere, so the implied number of cuts is not identical to a direct forecast. Next, monitor inflation, GDP, employment, bankruptcies, commercial real estate, and other rate-sensitive areas for evidence that policy pressure is weakening the economy. Form a dated thesis between the official and market-implied paths, state the uncertainty, and continue operating regardless of whether the prediction is right. Refresh the view when new data or a new Fed projection changes one of the three inputs.
Origin
Kevin Peranio explained why he expected a May 2024 cut by comparing the Fed's 75-basis-point projection, futures pricing that implied as much as 150 basis points, and his expectation of weaker economic data.
Core principles
- 01Policy guidance supplies an official baseline
- 02Futures pricing reflects hedging as well as conviction
- 03Economic data can move the likely path between meetings
- 04A forecast should remain a thesis rather than a certainty
How to run it
- 1
Set the policy baseline
Read the latest Federal Reserve projection and note the expected total policy change and the date of the next projection update.
Pro tip Separate what policymakers have published from commentary about what they might do.
Watch out A projection is guidance, not an obligation.
- 2
Read market hedges
Inspect fed funds futures to understand the path priced by institutions and the range of outcomes being hedged.
Watch out Do not convert futures pricing mechanically into a confident count of rate cuts.
- 3
Track economic pressure
Monitor inflation's pace alongside GDP, employment, business credit, bankruptcies, and rate-sensitive sectors.
Pro tip Look for a pattern across indicators rather than one dramatic release.
- 4
Triangulate the path
Place the most likely timing and magnitude between the policy baseline, market-implied range, and observed economic trend.
Pro tip Explain why your estimate differs from both endpoints.
- 5
Plan without dependence
Keep the operating plan viable if the cut arrives earlier, later, or at a different size than expected.
Watch out Hope for lower rates is not an operating strategy.
- 6
Refresh with new evidence
Reassess the thesis when new economic releases or Fed projections materially change an input.
Pro tip Record the prior thesis so changes are evidence-led rather than retrospective.
In the wild
The Fed's December projection indicated 75 basis points of cuts in 2024, while fed funds futures were pricing as much as 150 basis points. Peranio expected GDP and job creation to weaken by May, placing his forecast between the official and market-implied paths. He predicted a 50-basis-point first cut while emphasizing that the business still had to operate every day.
→ The forecast had a stated date, magnitude, evidence chain, and uncertainty rather than resting on a desire for lower mortgage rates.
Common mistakes
Reading futures as a poll
A futures position may hedge risk elsewhere, so its implied path is not necessarily the buyer's literal prediction.
Forecasting from preference
Wanting lower rates can masquerade as analysis unless the thesis is anchored to independent signals.
Building a plan that needs the forecast
Even a reasoned forecast can be wrong, so execution cannot depend on one timing outcome.
Is it for you?
Best for
It is best for operators whose planning is sensitive to monetary policy but who must keep executing under uncertainty.
Not ideal for
It is not ideal as a guarantee of timing or as a substitute for resilient planning across multiple rate scenarios.
From the transcript
“hope is not strategy we're we're going to keep doing business regardless of when the FED cuts”
“when you look at 150 basis points of cuts on the CME tool which divided by 25 is six rate Cuts that's where everyone keeps…”
“I think it's somewhere in the middle”
From the episode
Innovating In the Mortgage Industry with Kevin Peranio