Hello,
Ive developed a big interest in the market and economics and the recent development leaves me slightly confused. As I understood markets rallied over the past month off of inflation data coming down and potential interest rate cuts.
Obviously lots of data with ppi, CPi, Jobless etc PP.
Furthermore ratecuts meant (usually) more spending both in private as well as business sector. Now markets anticipate a 50bps cut and sold off hard fearing recession might already be here.
I know that actual cuts in the past led to often mark tops and sold off but my question is:
Why do markets rally in anticipation of rate cuts but now sell off in fear of recession/hard landing.
In: Economics
The sell off yesterday was because people are worried about a recession based off of unemployment coming up to 4.3% which is higher than what was expected.
The fed has a dual mandate;
1. Keep prices stable at about a 2%-3% inflation rate.
2. Keep unemployment around 4%.
The markets are worried that the fed has kept rates too high for too long and have caused the USA economy to slow too much which will result in a recession.
Most market analysts think this is not the case but the jump in unemployment should signal to the fed that they should cut by at least 50bps by next meeting.
The concern the fed has is that inflation will just start going up again as soon as they cut rates which is what happened under Volker in the 70’s.
Latest Answers