Executive Summary:
Executive Summary: The Fed Put is back. Given the likelihood of two more reductions in the federal funds rate before year-end, we’re reducing the odds of our bullish base-case Roaring 2020s scenario from 55% to 50% and raising the odds of an even more bullish stock market meltup from 25% to 30%. Indeed, the stock market jumped Friday in reaction to a cooler-than-expected inflation report, since it buoys the case for Fed ease. Today, Dr Ed explains why further rate cuts are not needed now with both parts of the Fed’s dual mandate, unemployment and inflation, close to Nirvana. The Fed’s attempt to achieve the “neutral” FFR rate by easing is more likely to drive stock prices higher than to help the labor market. … Check out the accompanying chart collection.
Inflation I: Fed Set To Lower Rates Again
We’re tweaking the odds we assign subjectively to various stock market scenarios: We are raising our odds of a very bullish stock market meltup from 25% to 30%. We are lowering our bullish base-case scenario’s odds from 55% to 50%. We are keeping our bearish scenario at 20%.
We are doing so because the Fed has been signaling that more rate cuts are likely before the end of this year. September’s cooler-than-expected CPI inflation report, released on Friday, increases the odds of
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