Market implied Fed Funds rate discount a string of cuts starting in January 2024 and culminating in a 4.492 percent in January 2025.
Market participants who assume rate cuts will be bullish may be taking too much risk for the wrong reasons.
Powell continues to repeat that there is more likelihood of rate hikes than cuts and that the battle against inflation is not over.
In this scenario, unless the economy starts growing fast without any significant credit impulse, something that is too hard to believe, it does not matter if the Fed cuts rates or not.
With these conditions, it is almost impossible to create a solid and positive credit impulse from rate cuts when the economy loses the placebo effect of debt accumulation.
Fed rate cuts as the drivers of multiple expansions and bullish markets may be the ultimate mirage.
If the Fed does cut rates, it is because it failed to achieve a soft landing, and by then, the risk accumulation in debt and Fed borrowing will be hard to manage.
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