I Changed My Mind About Rate Cuts
Investors,
In July 2023, I expressed my view that the Federal Reserve would cut interest rates by 100-250bps (1% to 2.5%) in 2024, starting no sooner than Q3 2024. I referred to these cuts as “disinflationary” or “non-recessionary” rate cuts, and I viewed this potential monetary policy as a bullish catalyst for asset prices amidst a technical bull market environment with disinflation and resilient macroeconomic dynamics.
My prediction was based on several assumption, many of which have played out.
However, some of those predictions are taking longer than I initially expected.
Thankfully, my guidance on monetary policy dynamics has been close to impeccable over the past 28 months.
When the Fed announced that they would taper their asset purchases in November 2021, I raised concerns about speculative growth stocks like ARKK 0.00%↑ and published an official negative stance on ARKK thereafter. The ETF went on to fall 75% thereafter into the December 2022 lows, roughly one year later.
You can read that report here:
When the Fed made it clear in January 2022 that they were gearing up to raise interest rates in the near future, I questioned if this was going to be Powell’s “Volcker Moment”, indicating that were were on the cusp of a tightening cycle of historic magnitude. At the time, most analysts said that the Fed wouldn’t (and couldn’t) raise interest rates. I said they could raise by +1% in a single meeting. Though 1% rate hikes didn’t come, we received several consecutive hikes of +0.75%, undergoing the largest & fastest tightening cycle in modern economic history.
In December 2022, when the 2Y Treasury yield fell below the effective fed funds rate, analysts said that the Fed’s next move would be a cut. I told investors that the Fed would hike 0.5% to 1.25% in 2023. When the banking “crisis” happened in March 2023, pundits on television and social media said the Fed would (and should) cut interest rates. I said there was no chance and that it made zero difference if they hiked another +0.25%.
Sure enough, they did hike in March 2023 and their total rate hikes in 2023 were +1.0%.
In December 2023 and January 2024, investors were pounding the table that cuts were coming in March 2024… to which I simply said “that’s not going to happen” and reiterated my expectation that cuts weren’t coming any sooner than Q3’24.
When the March meeting came, the Fed kept their policy rate stable.
Then investors said cuts were coming in May. I reiterated Q3’24, at the soonest.
Then investors said cuts were coming in June. I reiterated Q3’24, at the soonest.
Now, the odds of a cut in June are plummeting:
While investors continue to use the CME FedWatch Tool and fed funds futures, I’ve relied on my rigorous study of the Federal Reserve’s reaction function and the bond market to assess policy outcomes & probabilities.
My outlook has differed from the consensus repeatedly, but those who have followed my research have benefited tremendously from those non-consensus views.
In today’s report, exclusive for premium members, I’ll be updating my outlook on monetary policy and analyze the potential impacts for the stock market and Bitcoin.
To support my work as an independent analyst and benefit from the ideas within these reports, consider becoming a premium member! If you’re already on the premium team, I’m hyped to share this new outlook with you and I’m grateful for your continued support.
Let’s go.