No reason for markets to fall even if the Fed chooses not to cut rates this year, economist says

Getting pretty good. You know that .4% month over month is a high number and you know so see and and they’re looking at that. They’re not just looking at year over year, they’re looking at rolling three month trends and that number’s starting to creep up. But here’s the thing about the market. If you think about where the market was pricing Fed cuts in January, they’ve reduced those, right? And the January 2025 Fed funds target is about 80 basis points higher than it was at the beginning of the year. But the equity market is stronger, right. So really what’s going on here, it is, it is an evolution, right, where people have just seen the economy strong. Inflation is settling in at around 3 1/2 four percent, PC is a little lower than CPI for a lot of reasons. And so at three and a half, 4% inflation, 2 1/2% real growth, a 5 1/2% funds rate is OK, right? They’ve already told you they’re not going to hike rates, right, to try and shorten that timeline of getting to 2%. So if you’re the market, you’re like, well that’s OK. But I think the key is, and this is Waller and everybody else is pushing in that direction. Let the markets figure that out, right, Rather than the Fed imposing that view, let everybody kind of evolve to that position slowly. And and then all’s OK, I was putting out that Waller has been someone instrumental because he was the, the member over the Fed that suggested that, look, we can keep conditions tight for a while without causing casualties for the labor market. Like other cycles we’ve seen this time is a little bit different. You’ll just simply see the for higher sign go down out of the window. It won’t actually cause a spike in the unemployment rate. So the fact that he’s now guiding a slightly more hawkish tone than what we’ve seen before, is that something more significant for the markets and say Bostic earlier in the week, Yes, I think Bostic’s an important voice, but I think Waller is much more important and I think he’s sort of considered a bit of the alter ego of Powell. So when he says something, the market should react to it and look, he he’s right and he’s wrong, right. So it how tight is the Fed if the economy is continuing to roll along here and it’s not slowing down. At some point they have to ask themselves the question whether or not their base view which 50 basis points real is neutral which means 150 basis points right is tight and if you go before the O eight O 9 recession neutral was 200 basis points. So we’re we’re actually you know it are we back in that pre GM, Pre COVID world or in a different position. And again to be fair to the Fed, which I don’t have to be, but to be fair to the Fed, they’re kind of evolving and and and they’re doing the right thing by not rushing in either direction, right. And it could very well be that the economy just continues to show strength and as long as inflation doesn’t start moving up, back up above 4%, they can sit here. And as the markets recognize that the feds not trying to get tighter, right. In fact they’re on the side of the market. If there’s weakness, they’ll cut. If there’s no weakness, they’ll stay where they are. So if you’re the market, it’s, it’s it’s a bit you hate to say the put, but it’s kind of like a a put at least on the economy. And so I think the markets are right to rally off that and in fact financial conditions have been easing up a little bit, haven’t they, including mortgage rates even in the United States. It was really, really interesting sort of facts and figures, you know this Day in History kind of thing where it’s said that over the past 35 or so years of all the seven times at the fair to start at a rate cutting cycle, the markets with the exception of one time in the 1990s has actually declined. And I don’t mean just like a a blip one day but actually declined to quite a significant degree. And the reason for that was that usually the reason that they started cutting is because the because the economy is already in recession or it’s on the cusp of recession. So in other words, to your point right now, if the economy is resilient, maybe a bit better than expected and they don’t cut, that could be a good thing. It is a good thing and they and and it is a very look if they do cut, it’s because inflation’s lower and they don’t want to passively get more restrictive. Right now inflation’s moving the other way. So you’re exactly right, it’s getting less restrictive. But if you think about it in terms of the politics of it, which we can’t avoid this year in the US if they cut rates simply because inflation’s lower but the economy’s still doing well, the optics of that is that he’s part of the committee to re elect Biden, right? So even though we all understand the reason why they’re cutting, because inflation’s at 3:00 instead of four, etcetera, so, so they can’t wait too long then they can’t wait exactly. And that’s why the mark and that’s why the market is sitting there with a 2/3 probability of a cut in June, because this kind of cut they can only do in by June and after June, the window to do that is shut. Now they’ll cut after June if the economy falls apart. But you know, in that type of adjustment, very different. The optics of it make it very difficult after June.