Rate Cuts Won't Save, Instead Will Soon Sink Both Economy and Stock Market

Indraanil Guha

5/23/20242 min read

Fed Funds Rate (FFR) has peaked for the current cycle, and there is widespread expectation now amongst market participants that Fed would in fact start cutting rates very soon! These expectations got a further boost recently when the CPI (inflation) report for the month of April was released and it confirmed that inflation is now decisively trending down, with core inflation now down to a 3-Year low of 3.6%! This immediately reignited speculations across Wall Street that easing inflation would soon provide room for the Fed to cut rates, which in turn can potentially cut the cost of capital for both consumers and businesses, and hence is invariably interpreted by the Wall Street as a very bullish signal for stocks. And hence the prospects of rate cuts starting in the near future because of easing inflation was cheered loudly by way of equity markets in the US (and in India too) rallying strongly in the aftermath of the release of the April CPI report.

However such exuberance is absolutely unwarranted, and history is very clear on this – the real reason the Fed has to start cutting rates towards the end of every business cycle is NOT because it really intends to pander to Wall Street, but because economy is in such a bad state and demand slowdown so severe that the Fed simply has no option left by then but to cut rates, in the hope that rate cuts would be able to salvage the economy and prevent it from slipping into a recession. And yet history shows that Fed has hardly ever been successful in this, and that the US economy invariably slips into a recession anyways, despite the Fed cutting rates, and that too within just 4-5 months of the Fed starting to cut rates. Not just that, historically, recessions in the US have also been marked by steep stock market corrections, NOT just in the US, but pretty much around the world including here in India. Hence, as Wall Street every time realizes the hard way, there is absolutely nothing to cheer about Fed starting to cut rates, and that any rally in stocks that ensues after Fed starts to cut rates fizzles out pretty soon and in fact paves the way for a large drawdowns in equity markets once the economy actually slips into a recession.

But this video is NOT about scare-mongering, or about just highlighting the risks of an impending recession and stock market drawdown in the near future! Instead, the primary purpose of this video is in fact to explore an actionable strategy to time the markets such that investors can ride the tactical rally that is likely to ensue once the Fed starts to cut Fed Funds rates, and yet at the same time, they can also get out of markets sufficiently in the advance before a material correction kicks in once the economy slips into recession. Please watch the entire video if you wish to equip yourself with actionable insights on how to navigate the coming roller-coaster ride in equity markets that lies ahead in the near future!

Do watch the below YouTube video on Fed Funds Rate cuts will sink, Not Save the Nifty

Also, do watch my earlier video on HOW TO TIME THE UPCOMING MARKET CRASH, that I have referred to multiple times in this video.

Also watch my last Youtube video on FED Funds Rate