| You can see in the chart below how the most recent hiking cycle played out compared to past ones... In terms of steepness and suddenness, the other tightening cycles don't come close. Was it Too Much? For a few months early this year it seemed that the Fed might - just might - have stuck the landing (i.e., tamed inflation without causing a recession). Doing so is called a "soft landing," and it's the holy grail of central banking But suddenly, after the July employment report showed the labor market suddenly slowing much more than expected, and with the unemployment rate now a half percentage point higher than it was in March, it seems the Fed may have taken rates too high and left them there for too long. Instead of waiting until September to start cutting rates (as seems likely), it now appears the Fed should have started easing policy back in July, or even June. But hindsight is easy. And the current reality is that the Fed must scramble to adjust. As you can see in the chart below, the futures market now expects at least three quarter-point cuts by November - maybe even four (they would probably come as one half-point cut and a quarter-point cut, or two half-point cuts over the course of two meetings). That's a big change from just a few months ago, when most Fed watchers expected just one quarter-point cut from the Fed this year. And make no mistake about it, the Fed works very hard - through both public speeches and back-channel communications - to guide the futures market to the correct conclusion. The very last thing Powell wants is to surprise markets with an unexpected move on rates, up or down. We might even hear a rate cut commitment from Powell during his August 24 speech at the Jackson Hole Economic Symposium - which would most likely move markets. And that's likely how it will play out, with the Fed's target rate at least three-quarters of a percentage point lower by year end. Will it work? That is, will a few rate cuts before the end of the year be enough to keep the economy from falling into recession? It's too early to know, of course. The economy is massively complicated, and different parts of it - consumer and business spending, the stock and bond markets, the housing market, the dollar, etc. - will react in different ways to falling interest rates. But rest assured that we at The Oxford Club will be closely monitoring the Fed and its next moves. Rate cuts will bring opportunities in different sectors for investors. So stay tuned... Speaking of, Alexander Green is holding an Emergency State-of-the-Market Summit to discuss what the Fed is going to do next - and how to potentially profit from it. It's being held virtually on Wednesday, August 21st, at 7 p.m. ET. It's free to attend, but you must RSVP here. And, always, Invest wisely. Matt (Clicking any link in the article above automatically registers you for Alexander Green's Emergency State-of-the-Market Summit, a free subscription to our e-letter Liberty Through Wealth, and offers from us and our affiliates that we think might interest you. You can unsubscribe at any time. Privacy Policy.) | 
No comments:
Post a Comment