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Rate cuts are NOT bearish or bullish educate yourself: Context is key
Exactly like the title says and contrary to both doomers or permabulls, when Federal Reserve is cutting rates is neither bearish or bullish, it ALL depends on the context when the cuts are done.
Since September FOMC is around the corner, I thought is a good moment to remind people that is much better to do a bit of research and understand the bigger picture, then to listen to larps and engagement farmers (both sides), so here it goes:
1. Cuts because Recession - very bad short/medium term, 3-12 months for recovery.
2. Cuts because Panic - very bad short term, OK medium/ long term, 1-3 months for recovery.
3. Cuts because Normalization - small potential drop short-term and very good medium, long term.
It's all about the context in which we will find ourselves when FED cuts this year (IF they cut this year), but in general people just take information around here as it comes, without more research.
I had the same debates in March last year with people who either didn't understand the macro regime, didn't have enough information, were ignorant or all 3, so to conclude:
1. IF Fed cuts in September, is it done because of a Recession? No - then it's bullish
2. IF Fed cuts in September, is it done because of Panic? No - then it's bullish
3. IF Fed cuts in September, is it done because of Normalization? Yes then it's bullish
Thank you @RyanDetrick for the information and research going back to 1984🤝.
Bookmark and Retweet this post so others can have a balanced view for the upcoming meetings!