It was a cruel, counter-intuitive squeeze in markets in the immediate aftermath of the Fed decision. It was something of a ‘sell the fact’ trade but Asian markets had a look at the state of play and decided that sometimes a cut is just a cut, not a sign of panic.
As I wrote late yesterday: “I think at the end of the day, you have a ‘Fed put’ now and that wins out”.
The speed and power of the turn surprised me as I feared some follow-thru from the bears that hasn’t been the case. The ‘don’t fight the Fed’ trade now is headline from Powell’s press conference and something that he repeated several times.
“We’re committed to preserving our economy’s strength”
That syncs with what he said at Jackson Hole where he said the Fed didn’t want to see any further deterioration in the labor market. The dot plots put year-end unemployment at 4.4% and staying that way in 2025 before falling to 4.3% in 2026. It’s at 4.2% now but that’s a strong way of the Fed signaling, ‘if jobs soften, we will cut more’.
So barring something shocking in the next hour, US equities will open at record highs and the market will continue to contemplate how a soft landing looks.