Fed needs to cut by 100bp just to get to neutral, not their job to push back equity rally

I posted earlier on analysts at Morgan Stanley’s Federal Open Market Committee (FOMC) forecast:

Separately, the portfolio solutions CIO at Morgan Stanley Investment Management was interviewed on bbgt TV on Wednesday, and he leans towards very aggressive cuts indeed, saying the Fed would like to get to a real yield (nominal Fed Funds rate minus inflation) around 1.5% as its neutral level:

  • so if we
    look at nominal Fed Funds today at
    5.5% and let’s say US
    inflation is at
    3% that means real
    policy rates are at
    2.5% which means that
    the FED could cut a
    100 basis points
    just to get to their
    neutral level
  • there’s like six rate cuts priced in but
    remember 100 basis
    points of those rate cuts is really just
    getting to neutral, and they don’t
    start really easing
    until they start
    doing more than 100

He goes on to discuss the Fed’s attitude to the equity rally:

  • if the
    markets are rallying
    that’s okay with the Fed, the Fed doesn’t
    have to push back on
    on a rally because
    they don’t like a
    rally that’s not their
    job effectively what
    they’re saying is
    can we get this
    rally and can inflation
    also stay low and if the answer is
    yes
    to both then they
    don’t care if if the
    market continues to rally

Full interview

This article was written by Eamonn Sheridan at www.forexlive.com. Source