Transcript of the conversation:
Question: Do you think markets are reacting adequately to last week’s decline in inflation?
Answer: I see the stock market welcoming the possibility of the Fed cutting rates. If the market is positive about the prospect of lengthening the current economic cycle through lower rates, then I agree with that. However, I think you need to be careful. It is important to strike a balance between lengthening the cycle and lowering rates due to the approaching end of the cycle and a softening economy. Investors will have to deal with this in the coming months. We think starting rate cuts now could prolong the current cycle.
Question: What exactly do you mean by lengthening the cycle?
Answer: When the Fed cuts rates, it does so in anticipation of a perceived recession, right? This often happens when the Fed cuts rates and a recession is imminent. This is why I say the difference between the Fed cutting rates to extend the cycle and cutting rates because of a coming recession is thin. There’s a really fine line here.
