The data-driven Fed lowered rates by 25 bps and made a major adjust for 2025 by suggesting there will only be two rate cuts in 2025. Of course, we now know that GDP will be steady, but PCE inflation and core PCE inflation will both be higher in 2025 and not reach the 2 percent target until 2026-2027. If that is the case, why cut now and why suggest any cuts in 2025. Why pretend that you have a plan when the actions taken are not consistent with the plan nor are the actions going to get you to the goal.
The stock market tells us that the expected action from the Fed for 2025 is a surprise. Think about the almost panic at the fed before the September meeting only now to see the fed wants to slow-walk further action in 2025. The 50 bps cut and SEP forecasts in September now look like a mistake.
The VIX is telling us the market is in panic beyond the overall market decline. We are not at August carry trade debacle numbers, but we are heading in that direction. The dollar shot up like a rocket and the bond market and the long bond fell to levels not seen since June. This Fed action changes equity forecasts for 2025.
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