As we’ve been suggesting for months, the efficacy of Fed rate cuts at this juncture, in our candid view, is virtually nil; except for their potential positive impact on asset prices (stocks in particular) and the — albeit short-lived — igniting of animal spirits (increased economic activity) that might produce.
Guggenheim’s analysts see a 58% chance of recession by mid next year, and a 77% chance over the next 24 months; which pretty much jibes with our current assessment. They also sympathize with our view of the present bubble-risk of easy Fed policy.
Here’s from their recent piece Forecasting the Next Recession: Will Rate Cuts Be Enough?: emphasis mine…
“Watching the reaction of financial markets in the aftermath of Fed cuts will be key in determining how effective those cuts are, and whether a recession can be pushed back. The main channel for easing financial conditions would likely have to be a stock market rally, as longer-term rates are already pricing in aggressive easing and credit spreads are already near historical tights. This sets up one of two scenarios: either stocks fail to rally in the wake of rate cuts and the economy continues to lose steam and tips over into recession, or we see a liquidity-induced market rally that supports economic growth temporarily, only for the stretched market valuations to cause a more severe downturn when the rally falters and a recession eventually arrives.”