Markets Overeager for Fed Rate Cuts, Raising Risks of Volatility
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Markets have priced in too much Fed easing too soon, setting up volatility when rate cuts fail to materialize.
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Inflation risks remain due to fiscal policy staying loose, wage growth above target, and Fed fueling market enthusiasm.
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Neutral interest rate likely higher than markets think; pre-GFC normal had higher rates and less liquidity.
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Large Fed balance sheet opens channel for more lending/borrowing and loose conditions.
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With markets ahead of Fed, more volatility expected before yields stabilize and fixed income diversifies.