August 2, 2024 | Premium Service | With the post-COVID economy finally going into a stall, Wall Street has managed to convince itself that the Federal Open Market Committee is going to cut the target rate for fed funds in September. This is just two months before a contentious general election. Some bold pundits have even decided that the FOMC will give us three rate cuts between now and January 2025. We still like the no or one rate cut in '24 narrative, but Federal Reserve Chairman Jerome Powell may decide to get political on his way out the door.
Of course, a cut in the federal funds rate target may not produce an upward surge in stocks, especially if we are now talking recession in '25. Judging by the selloff in equities that began in May, the markets apparently lost important drivers in large-cap financials and technology stocks. But more important, the prospect of a second Trump Presidency focused on cutting taxes and boosting crypto currencies as a economic catalysts is starting to scare even the adults in the room. How do the credit markets look a year from now?