The Fed has always been late in cutting interest rates and certainly won't cut them fast enough when the cycle starts. This is the natural reaction to getting burned by inflation in the age of Covid.
It's been a long time since we've seen a “natural” cycle of interest rate cuts, so it's worth a reminder of what happens and always happens: the market turns into a whiny teenager. He's been kicking and screaming for lower interest rates, with stocks bleeding on anything that isn't overtly dovish.
And given the reaction to the FOMC, we are there. Yes, AI trading still carries the markets but it is a one-legged stool. Periodicals in particular are being destroyed. Take a look at steel stocks; The Cleveland-Cliffs company, which is used to make cars, is down 32% since early April.
Stock market expansion is bad.
Given this dynamic, the market doesn't necessarily like deteriorating economic data, because it only highlights that the Fed is behind the curve. This would break the “bad news is good news” pattern.
This article was written by Adam Paton at www.forexlive.com.