Summary
The Federal Reserve is less than a week away from cutting interest rates for the first time since the onset of the covid-19 pandemic. Though the move is widely anticipated, its effects will likely play out across the markets for some time.
Investors think there is some sort of Fed rate cut playbook, says Denise Chisholm, director of quantitative market strategy at Fidelity. “But it doesn’t really exist.”
There’s currently an unusually large gap between the federal funds rate and the inflation rate. After the second-quarter earnings season, firms in the Morningstar US Market Index saw more than 10% annual earnings growth.
Slowing labor market data over the past two months has sent an undeniably bearish signal. “It’s impossible to tell whether the Fed was too late, whether we’re going to have a hard landing or a soft landing,” says Castleton.