Pulling the Trigger

“The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

Powell couldn’t have been any more precise in his annual address at Jackson Hole.

There’s no wiggle room. The Fed will cut rates in September. Even if the Fed had fully intended to pull the trigger next month, Powell could have given the Fed a backdoor, maybe something like, “The time MAY SOON come for policy to adjust.”

Soon signals September. May gives them an out.

But the Fed isn’t one-data point dependent. A strong jobs report for August or a disappointing CPI just days before the Fed’s September meeting won’t discourage Fed officials.

The Fed made its intentions crystal clear. It’s ready to start easing up on the monetary brakes.

Two puzzle pieces coming together

Beware the Ides of August?


What the heck is going on?

Investors tip-toed into August and were greeted by an unexpected cyclone from Japan. However, as quickly as the storm entered our orbit, it moved on, and the S&P 500 Index is pushing toward a new high.

The equal-weight S&P 500 is trading at a record high.

August and September have historically been challenging months for investors.

While historical patterns sometimes have predictive value (and the month isn’t over), these aren’t hard and fast rules.

Economic fundamentals shouldn’t be discounted. In my view, fears of an imminent recession were overblown, and the Fed is gearing up to cut interest rates.

Rate cuts that coincide with a soft landing have historically supported stocks (mid-1980s, mid-190s, 2019(, while those that accompany a recession do not (2001 and 2008).