Closing Thoughts for the Week

The markets got good news this week regarding what had been one of the stronger arguments for an economic slowdown - the labor market. The jobs report has shifted expectations for the Fed, which probably brings the markets in line with where the pace of policy change should be. I’m still concerned that falling rates while the economy is still in good shape runs the risk of another round of inflation.

The biggest development of the week is unquestionably the announcement of the massive stimulus package by the PBoC. It’s the type of comprehensive measure that the markets and the economy have been waiting for for a while and now they’re going to finally get it. The big question now is whether or not it will work. It doesn’t come without some potential downside risk, namely inflation.

The Fed opted for the larger 50 basis point rate cut to kick off its easing cycle and the markets seem to think that’s just dandy! Where the markets head from here really depends on whether or not Powell was telling the truth. The last two times the Fed led off with a half-point cut were 2001 and 2007. Not exactly the best precedent to follow.