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The Fed started what might develop into a rate cut campaign by reducing the target rate by 50 basis points. It looks like Chairman Powell has decided to take “Gradualism” behind the barn and put it out of its misery.

I am still somewhat skeptical that the rate cut campaign will be sustained in the absence of a recession. I am not in a position to opine on recession odds. It is clear that the Powell Fed has concerns with the utility of the Fed’s models, and so rate cuts would be based more on vibes than following some rigid Taylor Rule concept. I would expect moderate cuts to some round number, a declaration of victory over deceleration, and then a return to “wait and see” mode.

In addition to not wanting a recession for humanitarian reasons, a rate cut cycle in the absence of a recession might finally kill the “yield curve forecasts recessions” theory, which will eliminate a lot of execrable macro analysis where people data mine yield data trying to find the “optimal” recession prediction slope. Under the entirely plausible assumption that fixed income investors are attempting to generate trading profits, the yield curve predicts the Fed, not recessions.

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