Benjamin Cowen breaks down why the Fed's rate cutting cycle appears finished and why a rate hike this year is more likely than most people think.
Key Points
Key Highlights:
- The unemployment rate has actually been falling since November despite weak job creation, mainly because the labor force participation rate is dropping fast, masking real labor market weakness
- Oil ticking back up recently suggests inflation is not fully conquered yet, and the 30 year yield keeps climbing toward new highs as bond markets grow uneasy about the Fed's lack of forward guidance
- Other major central banks including the Eurozone, Australia, Japan, and New Zealand have already started hiking again, suggesting the US could eventually follow the same path
- A rate hike historically signals the economy is fine, not falling apart, similar to 1997 when a hike briefly rattled stocks before they climbed even higher into the next recession
Takeaway A hike this September or December looks likely, and while it could trigger a 10 to 20% stock correction in late Q3 or early Q4, history suggests this becomes another buying opportunity rather than a true crisis.
