Inside Markets — Fed Discourse

Some discourse has emerged over whether it is appropriate for the Fed to begin cutting rates while equity markets make new highs. Importantly, the Fed’s mandate centers on inflation and labor markets, not equity prices. With labor markets now showing cracks of weakness, the Fed has justification to continue its easing cycle to end 2025. In the past 40 years, the Fed has begun a cutting cycle with equities at all-time highs eight times, with half preceding a recession and half leading to continued economic growth. In the four instances a recession was avoided, the SPX generated a median six-month return of +8% and a median 12-month return of +15% with a 100% positive hit rate.