FOMC preview: 25 vs 50 vs 75bps and historical returns after first cuts
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Pre-FOMC analysis arguing stocks historically respond well to first rate cuts if there is no recession and poorly if there is, with July 2019 as the exception. Sees 25bps as bullish and 50bps worrisome.
Key claims
CME FedWatch priced a 50bps cut at 66%
Stock returns after the first cut were negative in recession cases
BlackRock expected a 25bps cut
< 12h until a decisive FOMC and the first rate cuts by the Fed since March 2022.
Market expects 50bps cut, while @BlackRock said yesterday that they expect less (25bps).
What does it mean for markets? 馃搱 馃捀
Historically, stock market returns (stocks are likely to lead the way for crypto) have responded well to rate cuts if there was no recession.
However, in the recession case (often coinciding with larger cuts by the Fed), the stock market performance in the months after the first cut was negative.
The exception is July 2019, where the Fed cut rates 25bps, which was followed by a positive market performance, even though economic indicators confirmed a recession within the 12 months the rate cut.
My opinion is still unchanged (see post linked below).
- 25bps cut = bullish
- 50bps cut = can go both ways but worrisome
- 75bps cut = bad news, economy is f**ked and market will acknowledge
According to Fed Watch by @CMEGroup, market expects Fed rates to be cut 50bps with 66% probability.
What do you think anon, will the Fed ignite Uptober today or are we going to get rekt bad?
QUOTING @zerokn0wledge_
5 days ago, market expected a 25bps rate cut by the Fed tomorrow with 87% probability according to CME's Fed Watch. Today, expectations are at 67% for a 50% cut after US senators demand 75bps cuts in letter to Powell. What does it mean? Is this bullish? Personally, I believe n
5 days ago, market expected a 25bps rate cut by the Fed tomorrow with 87% probability according to CME's Fed Watch. Today, expectations are at 67% for a 50% cut after US senators demand 75bps cuts in letter to Powell. What does it mean? Is this bullish? Personally, I believe n
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What came next 路 since 18 Sep 2024
Since then
Zero has written 2 more pieces on Federal Reserve since this one.
- Powell after the 50bps cut: key takeaways and panic-cut riskOn Federal Reserve
- FOMC outcome scenarios: how 25bps, 50bps and 75bps cuts could hit marketsOn Federal Reserve