Fed Is Easing Into Major Regime Shift | Darius Dale
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All right. Welcome back to another episode of Ford guidance. And joining me today is the legend himself. Darius Dale of 42 macro. What's going on, man? Felix.
I appreciate the kind introduction, man. Thanks for having me here. I wouldn't say I'm a legend, but I'm, I guess I'm pretty good at my job.
That's an understatement, but, there's nobody I'd be rather talking about to today. We're talking, we're recording today on Tuesday, 11 AM Pacific or about 24 hours exactly from the big FOMC meeting that's happening tomorrow. It's looking like it's gonna be the first cut of what will likely be a rate cutting cycle. So I just wanna get right into it and ask you, what are you looking at as we head into tomorrow? I
think that you have to start the conversation with, like, a 30,000 foot view on actually what is happening in the economy because I think that'll help better contextualize what asset markets are likely to do in response, not just to tomorrow's policy rate, normalization the start of the policy rate normalization, but also throughout this this policy rate normalization cycle. So, number 1, with respect to growth, we've been the high on the street on growth for 2 years now, consistent consistent with our resilient US economy theme, which we authored, you know, a little bit over 2 years ago. I be
Yeah. That's a great context. I feel like one of the main corals that the market is having these days is this debate between, you know, are we cutting rates because we're about to enter a recession, Or are we cutting rates because of it's a it's a normalization process? And this this this battle for inflation is is somewhat complete and that the risk are transferred over to the labor market. So we're gonna become less restrictive. And it feels like that's sort of the debate at hand. So it sounds like, from your perspective that, you know, you believe that secularly, you know, inflation is is b
much so. And I actually got a good question on Twitter about this, today with respect to normalization, because I the the the customer or client was saying, hey. Yeah. That's a big word. You're gonna use big words like that. But the reality is I think it's important to make the distinction between policy normalization and outright easing. Outright easing means the fed is decide this is is intending to take the policy rate below neutral setting such that it would create, you know, sort of, stimulus in the in the in the real economy. Normalization means that they intend to take the policy rate t
Nice. Yeah. So it feels like there's there's 2 debates at hand. There's the first one, which is quite a unique moment is that we're going into the meeting tomorrow where we don't really know how much they're gonna cut. There's debate around 25. There's debate around 50. Right now, the implied probabilities are leaning towards 50. Slightly. If they're good yeah. If they're gonna go 50, is that still a normalization cut? And why is there even that debate right now about the the number? And then the second question is more about just that terminal funds rate and leading into what you're talking a
great question, Vince. I appreciate that. So I'll start with 25 versus 50. We'll unpack our, you know, just kind of general thoughts on that, through the lens of our, most recent macroscotting report here. We publish this presentation every month, to our clients here at 42 Macro. So with respect to the 25 versus 50 debate, we know that the US economy's late cycle was evidenced by the inversion of the 3 month, 10 year treasury yield curve. We know the US economy's late cycle is evide
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