All eyes are on the Fed’s Friday speech at Jackson Hole to see if Jerome Powell is going to give any hints about what the Fed’s thinking.
“Will they cut? Won’t they cut?”
I’ve even seen some news headlines saying that at this point a cut is practically guaranteed — the real question is “how much?”
I think it’s all a bunch of malarkey.
First of all, inflation still isn’t at the Fed’s 2% target.
So if they’re going to cut, they really ought to wait until after the election. Maybe even into next year like I said the other day.
Anything else is the Fed playing politics.
But let’s put that aside for a moment.
Why are markets so hungry for a rate cut?
Especially when charts like this one show that the market tends to take a nosedive after the Fed cuts rates?
The answer’s simple: For 12 years, the interest rates were at practically zero.
Now that the Fed had their fastest rate hike campaign in history, it’s caught traders and businesses off guard.
Most of them are used to the zero rates and they want them back there.
But if you ask me, this is plain stupid. It’s basically the market looking for a “sugar high” that’s sure to fade fast.
As I said, we still have inflation above the Fed’s target rate, so there’s basically no reason for it.
On top of that, it’s a well-known (but often conveniently forgotten) fact that the Fed cutting rates is a sign that they think the economy’s in danger.
And that’s why you shouldn’t want a rate cut. Even if the market is on the edge of its seat waiting for one.
— Geof Smith
P.S. With the S&P 500 just over 1% away from a new all-time high… It’s the perfect time to think about my favorite type of hedged trading strategy.
