When the Fed Begins to Ease, Markets Respond Positively

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Futures markets are forecasting a Fed rate cut sometime in 2024. The Fed typically starts to ease ahead of economic weakness. But this isn't necessarily bad news for financial markets.

As of late August 2023, the Fed funds futures market is anticipating that the Federal Reserve will start cutting its policy rate sometime by mid-2024. In fact, the futures market anticipates almost 100 basis points (bps) of policy easing (i.e., lowering rates) by December 2024.

As I show below, the Fed typically starts to ease monetary policy just ahead of weakening economic data. If the futures market is correct, by the middle of next year, media forecasts of impending recession will be pervasive. Alongside these will be the inevitable forecasts of the negative impact of recessions on stock prices.