After the #fomc meeting this week, market consensus is betting that rates will stay unchanged at the September meeting. Looking ahead in terms of monetary policy, if inflation does indeed continue its downward path, we might be closer to the first rate cut this year. If so, the chart below shows an intereting statistic: the average number of days from the first rate cut to the market bottom and the drawdown for the S&P500. 6.5 months and -23.5% on average over the last 50 years. It’s important to notice that the average may not be the best metric in this case, since corrections have been either very short or very long, but it provides an idea of the potential path ahead. More importantly, in terms of causality, liquidty is probably a more relevant metric than rates. The market will feel the pain when the fed starts unwinding or reducing the reverse Repo operations and the BTFP.
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