The chart below uses the rhymes of history to predict what can happen in the current Fed funds rate cycle. It shows, on the right side, current expectations using three #sofr curve, and also the path oficial interest rates followed in past cycles. With the exception of ‘98, current eecpectations show the softest interest rates decrease in modern history. Typically, when the Fed hikes, it breaks something, either the market (20+% drawdowns), a sector (tech, banks) or the economy (recession). And when it does, it needs to act quickly to reverse course, lowering interest rates as aggressively as it hikes them. As of today, there are no expectations of something being broken, and that’s why the path is not aggressive, as it discounts a soft landing. But as you know, expectations are almost never played out exactly as predicted. If history is a guide, rate cuts will accelerate as the #fed unwinds its fight against inflation.
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