The problem with that thinking is rate cuts happen when things are bad, not when things are good. Which means things need to break or we go to war (not the proxy kind).
They have been propping things up all year with the reverse repo window. That stash of cash is just about exhausted from what I have seen. What magic mechanism will they have next to prop up the market and the banks?
The market exuberance over rate cuts and easy money should be concerning. Rate cuts happen to spur growth, at least that is how things used to work.
The economy continues to fail to look bad. Low unemployment, labor force participation is up, consumers are still spending (although drawback on luxury spending).
Flipside is people are working 2-3 jobs to pay their core bills. Credit cards are maxing out. 60% are living paycheck to paycheck.
Is it bad enough to justify cutting rates as consumers compete against inflation? Historically rate cuts happen after things get bad, looking at the core fundamentals there is no reason to justify rate cuts. It disgusts me to see the greedy market being exuberant about rate cuts, because that means things are going to get bad and this exuberance is just a melt up of the market.
The question is ...what is bad going to look like this time? I suggest watching the Reverse Repo Window to find out. If the banks are not stabilized by the time the funds in the Repo Window run out, likely around Feb 2024, what happens next? https://fred.stlouisfed.org/series/RRPONTSYD
Why all the hysterics about reverse repos? It baffles me. That’s extra cash held by banks. It’s a huge private surplus of cash. If reverse repos go down, the cash has to go somewhere.