The Fed Put is back. Given the likelihood of two more reductions in the federal funds rate before year-end, we’re reducing the odds of our bullish base-case Roaring 2020s scenario from 55% to 50% and raising the odds of an even more bullish stock market meltup from 25% to 30%. Indeed, the stock market jumped Friday in reaction to a cooler-than-expected inflation report, since it buoys the case for Fed ease. Today, Dr Ed explains why further rate cuts are not needed now with both parts of the Fed’s dual mandate, unemployment and inflation, close to Nirvana. The Fed’s attempt to achieve the “neutral” FFR rate by easing is more likely to drive stock prices higher than to help the labor market.
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