Thread by @KobeissiLetter

It's official:

For the first time in 2025, the Fed just cut interest rates by 25 basis points and "blamed" a weaker labor market.

Immediately after, the US Dollar fell to its weakest level since February 2022.

What's coming next? Let us explain.

(a thread)

Today's rate cut made history:

This marks the first Fed interest rate cut with Core PCE inflation at 2.9%+ in 30+ years.

The decision was CLEARLY driven by the labor market portion of the Fed's "dual mandate."

The labor market is simply too weak, even as inflation has risen.

Today's meeting was also important as it came with the update Fed "dot-plot."

This shows where Fed officials see interest rates moving, as shown below per ZeroHedge.

The median projection showed an additional 50 basis points of interest rate cuts before the end of 2025.

As noted above, there was one clear outlier in the data.

This was Stephen Miran, a recent Trump appointee, who dissented the decision to cut by 25 bps in support of a 50 bps cut today.

As seen in the dot-plot, the Fed appears to be very divided as we look ahead.

In fact, this is the most divided we have seen the Fed in a very long time.

9 out of 19 Fed officials see 2 more interest rate cuts in 2025.

Meanwhile, 6 out of 19 see no more interest rate cuts in 2025.

This is a massive divergence with just 2 Fed meeting left this year.

The Fed also updated their economic projections.

While they see PCE inflation moderating, their 2026 forecast was raised from 2.4% to 2.6%.

Meanwhile, unemployment is expected to remain in the 4.3% to 4.5% range.

It's clear we are trending toward stagflation.

The market knows that the Fed will now be prioritizing the labor market over inflation.

As a result, the market now sees a base case of 4 MORE rate cuts by September 2026.

Again, this is a historic pace of rate reductions into inflation, a situation almost never seen before.

The Fed is now officially cutting rates with the S&P 500 at a record high.

The last 20 times this happened, the S&P 500 rose an average of +13.9% over the next 12 months, per Carson.

Near-term volatility will persist, with 50% of cases resulting in negative 1-month returns.

What about the housing market?

Heading into this rate cut, homebuyer demand hit its 2nd lowest level on record, near the 2009 low.

But, what's interesting is that rates have already dropped in anticipation of today.

This was priced-in, yet demand remains historically weak.

If the Fed wants relief in the house market, here's what needs to happen:

Mortgage rates would need to drop enough to incentivize the 55%+ of homeowners with <4% rates to move.

Otherwise, the result will be ~5% mortgages with somewhat higher demand, but still limited supply.

Powell was asked on cutting rates with stocks at record highs and a "potential bubble."

Powell said he is "focused" on containing inflation and unemployment, not the stock market.

As we have said for months, asset owners will reap the rewards of this new era of fiscal policy.

Above 2% inflation is being met with rate cuts.

As a result, the economy is shifting and its implications on stocks, commodities, bonds, and crypto are investable.

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Lastly, Powell concluded with a similar statement as July.

"Risks to inflation are tilted to the upside, and risks to employment are tilted to the downside, a challenging situation."

Sounds like stagflation.

Follow us @KobeissiLetter for real time analysis as this develops.