Posted 1/9/2024, 5:26:00 PM
Market Expectations of Aggressive Fed Rate Cuts May Face Reverse Goldilocks Reality Check
- Mismatched expectations between markets and Fed on rate cuts could lead to "reverse Goldilocks" scenario and asset sell-off
- Markets think Fed will cut rates soon and aggressively, but Fed hasn't signaled dovish policy
- Disconnect between market expectations and Fed policy could stir major sell-off as rate bets adjust
- Robust economic growth and above-target inflation aren't compatible with aggressive rate cuts
- As expectations of rapid rate cuts are priced out, "good news becoming bad news" could lead to losses across assets