A slowing economy, a slightly higher unemployment and 3 rate cuts for 2024. That’s the bottom line after the last FOMC meeting of the year. Chairman Powell communicated the Fed keeps seeing an economic soft landing, where the economy slows down gradually, but they never lose control. As you can see in the chart below, after the press conference, the market priced 6 #ratecuts, vs the 3 predicted by Powell, bond yields sunk and equity indexes rallied. The Dow printed new highs and the S&P500 is less than 2% from all time highs. With this move, the Fed is trying to carefully close the gap between them and the market, posiitioning themselves halfway. But the market will keep pushing to get more. Why would the Fed need to cut, even three times, if markets are touching new highs, and the economy is doing ok? Because it’s not sustainable. Markets don’t celebrate deceleration and unemployment increases, they celebrate proactive approach towards the slowdown. And historically, markets fall after the hiking cycle is completed and in advance of the slowdown.
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Chart source: Bianco research
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