SOFT LANDING WITH A BULLISH FINANCIAL MARKETS Vs THE BEGINNING OF A NEW RECESSIONS

Historically, when the Fed begins cutting interest rates after a prolonged period of high rates, it often signals that they perceive some underlying weakness in the economy. This pattern has preceded the last three recessions, which adds credibility to concerns that a similar outcome could occur this time.

However, Jerome Powell's recent remarks at Jackson Hole suggest that the Fed views the economy as strong enough to avoid a recession, even with rate cuts. If the Fed does cut rates, it might be more of a preventive measure to sustain economic growth rather than a signal of imminent economic trouble.

In terms of market impact, a rate cut could certainly increase liquidity, which would be bullish for assets like stocks and cryptocurrencies. However, as you've noted, the market's reaction might not be as rapid as some expect. The pace of economic growth could be more gradual, with potential new highs reached over time rather than immediately.

If a recession does materialize in 2025, we might see an initial market surge fueled by optimism from the rate cuts, followed by a pullback as economic realities become clearer. Given these mixed signals, your expectation of new highs but at a slower pace seems wise. It balances the possibility of continued growth with the recognition of underlying risks that could slow down that growth.

Ultimately, the Fed's decisions and the market's reactions will depend heavily on the economic data that emerges in the coming months. Monitoring employment figures, inflation trends, and overall economic activity will be crucial in determining whether we experience a sustained rally or a potential downturn.

What do you think?

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