The Federal Open Market Committee (FOMC) delivered a 50-basis-point interest rate cut as expected, signaling continued aggressive cuts through the end of next year. While this boosted the market initially, concerns about a potential recession have heightened due to increased labor market weakness and uncertainty about the future.
The FOMC gave the market what it wanted, but investors should beware of what they wish for.gave the market what it wanted: a 50-basis-point interest rate cut and an outlook for aggressive cuts to continue through the end of next year. As good as the news is, the outcome is that there is as much uncertainty about the future as there has been all year and a rising risk of heightened stock market volatility .the following day, signaling that the rally in equities is still on.
The risk of increased labor-driven recession is seen in the Fed’s outlook for unemployment, which is up 40 bps from the June forecast and may continue rising due to softening labor market data. The takeaway is that the Fed is still walking its tightrope with inflation on one side and recession on the other; volatility will remain elevated.
In either case, volatility will likely remain elevated due to sector rotation and flight to safety. The question is how the subsequent economic data unfolds and what that means to the market. Assuming the data continues to cooperate, the equity markets will likely move sideways within a range, with upticks offset by downticks as sector rotation continues. If not, the market will soon top out and sell off in earnest as recession fears peak.
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FOMC Interest Rate Cut Recession Risk Inflation Stock Market Volatility
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