Wall Street clings to hopes for interest-rate cuts despite inflation fears

 nvestors Are Almost Always Wrong About the Fed



 Investors are more convinced than ever that interest rates are coming down later this year. Their record on these things, however, isn’t great.

Wall Street has been caught offside in both directions while betting on the path of interest rates over the past few years. Few thought the Federal Reserve would get anywhere near 5% in the first place. 

Now traders keep ramping up bets that rate cuts are just months away, only to see that day recede with each batch of strong economic data

Eric Wallerstein Wall Street Journal 8 February 2024

https://www.wsj.com/finance/investing/investors-fed-interest-rates-a842073c



Three plausible explanations for the economy’s apparent immunity 

... to high interest rates each lead to completely different outcomes for the markets

Productivity is booming (buy Big Tech!)

The government financed everything, so of course it has been fine (sell Treasurys!)

Monetary policy is taking longer than normal to bite (eventually it will, threatening growth)

The ineffectiveness of rate increases so far is obvious. Far from reducing demand, the economy grew faster as rates rose further. Much of that was just luck. But the risk is that the impact of rates on the economy hasn’t been abolished, merely delayed.

James Mackintosh Wall Street Journal 8 February 2024

https://www.wsj.com/economy/central-banking/the-confusingly-strong-economy-told-in-three-stories-dfd8b387


What’s the Right Interest Rate for the Fed Anyway?

Justin Lahart Wall Street Journal 1 February 2024

https://www.wsj.com/economy/central-banking/whats-the-right-interest-rate-for-the-fed-anyway-b648fc4e






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