What you’re not hearing about why it doesn’t matter when the Fed cuts rates.

Stocks recovered from a two-year bear market at the December FOMC when the Fed pivoted and markets started expecting immediate rate cuts, and lots of them. Now those expectations have been dashed, with market expectations for the funds rate almost at the worst of this tightening cycle – yet stocks make new all-time highs. Fed officials insist policy is very restrictive, but they admit they don’t know what the neutral rate is. Growth and jobs since the Fed went above their best estimates of neutral confirm the stock market’s view that rates must not be, in reality, very restrictive or restrictive at all. Powell rationalizes this by claiming the economy is still recovering from the pandemic lockdowns, and when it is complete growth will fade. But by all metrics such recovery has been completed many quarters ago. Growth is coming from a post-pandemic productivity boom, with gains in non-farm business output more than three times growth in hours worked.