As we forecast the Fed announced the end of its QT programme at their meeting on 20 March.
The question is whether the easing from QT (already in the market, see chart) and China’s stimulus will be enough to help resurrect growth or whether there is more weakness to come. Because it is too soon for the lagged impact of the inverted yield curve out to five years to slow real activity (the curve became more inverted after the FOMC statement), this alone makes us believe softer data are on the horizon. We also hold to our view that the current run of poor data is not yet over. Our bias is consequently for the next Fed move to be a cut sometime in the second or third quarter. The trigger will be monthly employment gains running under 100,000 per month for several months straight.
We were ahead of the market in predicting that the Fed will cut rates in Q3. Markets are catching up but are not yet hawkish enough. The Powell Fed is proactive and will cut sooner to prevent a slowdown becoming a recession.
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