In a surprise, the #Fed opted for a 50-basis point rate cut today, in what it called a “recalibration” of its policy. That’s positive for markets. But I think market expectations for further rate cuts will be ultimately disappointed. Here’s what I took from today’s meeting: 1️⃣ The Fed’s assessment is that the “economy is solid,” the risks to the growth and inflation outlook are now “roughly in balance” and that it was not behind the curve. That doesn’t explain why the central bank cut 50 basis points over 25 basis points.

The #SahmRule is appealing. It is appealing to boil down complex problems into simple rules. And if you can show that a rule has “always” worked, it’s all the more appealing.

But consider this... Historical Fact 1️⃣ : Since 1970, the Sahm rule has never been triggered without a #recession having started.

Historical Fact 2️⃣ : Since 1970, The Sahm rule has never been triggered without employment falling no later than a month after.

No surprise here: The #Fed kept rates on hold today as expected, but also sees a very low bar for a first cut at the next meeting, in my view. Chair Powell said they hoped data will show inflation is still falling and, if so, they would cut by 25 basis points in September. 🧵 We shouldn’t be surprised by another surprise: A lot of data will be released between now and then, including 2 payroll reports and 2 CPIs. In recent months, a run of negative surprises have been followed by positive surprises – radically shifting the Fed and market narrative.

I see three key takeaways from the #Fed’s policy meeting yesterday where it kept interest rates on hold as expected. The first? It’s important to separate the #CPI inflation releases from the evolution of the Fed thinking… 👇 1️⃣ The May CPI release aside, it is unambiguously clear that a Fed that has long wanted to start cutting rates has gradually been adjusting to the reality that rates will need to stay high for longer – not only in the short term but also longer term.

Taper is coming soon but I definitely see no indication from #FOMC minutes that taper is coming as soon as #JacksonHole 1/5 The #FOMC minutes deliberately attempt to clearly divorce taper from the timing of #liftoff 2/5

Today’s personal income and consumer spending data for June reaffirm our view that the reopening continues to drive a powerful #restart — and there’s still room to run. 1/4 In the #services sector, particularly #leisure and #hospitality — which bore the brunt of lockdowns and restrictions — the #spending splurge continues as consumers make up for lost time. But spending is still a little more than 3% below its pre-pandemic level in real terms. 2/4