Today the Fed delivered what the market expected – ushering in the start of a new easing cycle with a bang. 50 basis points. It was the kind of bang we saw in 2001, 2007 and 2020. Earlier this week, market’s were pricing in the possibility of a 50 bps as high as 70%. They were right. But despite this, the market closed lower. My guess is the market is not aligned with the so-called “dot plot”…
"Interest Rates / Bonds"
Don’t Bet on 50 Bps for Sept.
Do we have a ‘good, solid’ economy or one that’s at risk of a recession? Is the employment market robust or one that’s slowing sharply? Should the Fed cut 50 basis points or 25? And if 50… why? These are not easy questions to answer – as you can make the case either way (pending your lens). Regardless, the popular narrative is one favoring a soft-landing. Jay Powell echoed this sentiment with a victory lap at Jackson Hole. Former Fed Chair Janet Yellen supported this thesis over the weekend…
Back to the Scene of the Crime.. And a Warning from PCE
Eight months down. Four to go. After shedding almost ~10% to start the month – the bulls managed to close the market at its highs. Whiplash anyone? The S&P 500 is back to the point where the markets panicked on a growth scare – however it raises a question: (i) can it break through previous resistance (the all-time high of 5669); or (ii) will it perform what traders call a “back and fill”? My guess is the latter – as we head into one of the weaker months of the year.
Powell Takes a Victory Lap
Fed Chair Powell didn’t disappoint at Jackson Hole – giving the market what it wanted to hear… rate cuts are coming. All that remains how many and by when? That’s not something Powell was ever going to offer (why remove optionality) – but the market is willing to bet we receive at least three cuts by year’s end. All eyes now turn to two major economic reports: (i) PCE due Aug 6 and (ii) Aug nonfarm payrolls due Sep 6. For e.g., if Augusts payrolls are similar to June’s (where only 114K jobs were added) – we could see the Fed cut rates 50 bps come Sept. What signal will that send to the market?
For a full list of posts from 2017…