If There’s Nothing to Fear…

We’ll get a chance today to find out what so unnerved the FOMC in October that they lowered fed funds rates to 1.50-1.75%.  This level was last seen in March 21, 2018 (when SPX was 13% lower.) At the time, the FOMC was still raising rates in the wake of that sharp 12% correction.

In terms of cuts, though, the last time was in Oct 2008 after SPX had shed 20% on its way to a 58% crash in the midst of the Great Financial Crisis.  The time prior to that was in Dec 2001 with SPX off 27% during the 50% dot-com bust in the wake of 9/11…Rates also dipped this low during WWII and the recessions of 1953 and 1958.

Prior to that, though, you have to go all the way back to January 1931 when the Dow had plunged 55% on its way to a 89% crash in the midst of the Great Depression.

This latest meeting will also be known as the start of Not-QE – the resumption of inflating the Fed’s $4 trillion balance sheet.  This series of cuts and the restart of QE is being billed as a non-event.  But, if history means anything at all, it ain’t.

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Futures were off as much as 14 points overnight, but are making a comeback. It remains to be seen whether we’ll finally get a backtest of the 10-day moving average and whether will prompt an emergency meeting of the Plunge Protection Team.continued for members


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