The Truth About Interest Rate Cuts

Jerome Powell has finally done it, the Federal Reserve just announced its first rate cut, pivoting its monetary policy from the tightening, restrictive stance we’ve seen over the past 2 years, to a cycle of rate cuts, easing monetary policy and stimulating the economy.

Since 1990 there have been 4 official US recessions and each came shortly after the Fed began cutting interest rates but there have been 8 rate cut cycles in that same period, only 4 of them were followed by a recession.

That’s because there isn’t just 1 reason why the Fed cuts interest rates, there’s actually 4, so to understand what might happen to the stock market or the economy in the current rate cut cycle, we need to understand the circumstances that surrounded the previous ones.

TIMESTAMPS
INTRO 0:00
RECESSIONS AFTER RATE CUTS 1:11
2024 CUTS ARE DIFFERENT 3:57
AN ANOMALY 5:21
2024 IS LIKE 2002? 7:00
RECESSION OR SOFT-LANDING? 9:03
STOCK MARKET RETURNS AFTER CUTS 11:10

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Disclaimer:
The information in this video is general information only and should not be taken as constituting professional advice from Hamish Hodder.
Hamish Hodder is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances.
Hamish Hodder is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this video.

[istvanpraha]

Stocks probably didn’t drop hard in 1990 because they weren’t priced ridiculously like right now

[odoacredacalcutta]

yeah but the FED didn't cut by 50 in 1995, only 25, so it's very different. 50 straight away without any apparent reason means they know something we don't know yet and it's obviously bad news.

[insomniactravels]

The huge missing factor in this video is the current record DEBT level which makes comparisons to past cycles totally invalid.

[tiagojoaoollo]

I absolutely love this channel, you're a great storyteller Hamish. Keep it up!

[scottlink]

Normally I like your content, but what do we make of glaring recession signals? And the Fed's own target rate estimates are too low to be considered a minor adjustment. I don't know how you can ignore the glaring issues in the banking and real estate sectors at the moment. Banks are drowning in underwater bonds and loans. If the Fed hadn't cut rates, we would have seen a deluge of bank failures, and we still might even with the anticipated cuts.

[unFortunateSon]

When the 1% tells you it’s safe, it’s always the opposite. These people are not your friends.

[ryanl]

Not sure about the US, but Australia has been in a per capita recession for the last year and a half. Does t seem like a healthy economy to me

[naumanhaider]

In all honesty i love hearing you and brandon speak, its the other side of the coin that really helps one to ground themselves. Think rationally before acting on anything. I am sure of a recession but no one can time it which is why grounding yourself is important.

[stevenrose]

Very clever guy watched your content for awhile. I like the depth of content you provide it's actual research not just opinion it's factual. Good stuff Hamish 👍

[danyunowork]

(4 to 5) is one cutting cycle just with a 8 month pause in the middle. Same for (7 to 8) it's one cycle with 3 month pause. And would be interesting to know if 4 and 6 were known to be recessions at the time or revised afterwards when it was obvious they couldn't lie about it any more.

[FXRunner]

Housing market is going to go crazy again and corporate commercial real estate is still screwed.

[simone_maya]

The stock market will go down further and goodluck on the fed pausing rate hikes w/ all the hawkishness that has failed to keep up with inflation.

[charleshacker]

Excellent research, my friend. Keep up the good work. You have a unique niche.

[PianoMatronNeeNee]

❤ 👏👏👏👏Great sharing my friend 👍. I enjoy your videos ♥️I hope you have a healthy and good day 😊

[clintonanderson]

So...we don't have an economic crisis in our hands? There is no housing bubble, no tech bubble, and the US currency isn't being considered for replacement as the world's currency for international trade? That's weird, the numbers must be lying to me. I guess I'll just dump all of my money into real estate and Nvidia. 👍

[zwatwashdc]

I am thinking back to how the Fed just keep slashing rates and printing money while the housing market went completely nuts, people lined up around the block to waive inspections and pay big dollars for a house that was worth 40% less a year ago. And yet they just kept printing. It was obvious into whose pockets the majority of the money was landing and what it was being spent on, yet they just kept printing. Look at the mess the housing market is now. I expect they are doing the same thing for the stock market now. The Fed will goose it until prices are just so high and nobody can afford it and everyone has a hangover. I expect this is about inflating away debt as housing and the stock market probably drives the pricing of most things in the economy. The question is, how close is the end of the party? Cause stocks fall a lot faster than real estate.

[MidwestOptimist]

Hamish makes another high quality product. Thank you mate!

[OexRex]

As a believer in bond market, back to 1990, the sole corollary signaling “recession likely” is NOB spread, i.e. 30 year bond yield falling below 10 year note yield. It di not in either 1995 nor 1998, it did in ‘90, ‘99 - ‘00, ‘06 and in ‘22.

Why is NOB so significant ? Simple; as recession appears and fed lowered FFR, it’s human nature to “lock” in the highest yield as long as possible and when bond vigilantes but the long bond it’s price rises simultaneously yield falls. Simple action/reaction.

It really is basically simple ! 😄

[rustler]

Thank you for that useful information from history, but I think if you take into consideration the extreme level of inflation we experienced after COVID, and the high peak of the interest rate, not to mention the fact that housing inflation still hasn't budged, it seems that we are not in a safe position. Even if inflation has fallen dramatically Y-o-Y, consumers have still lost almost 10% of their purchasing power without wages rising enough to compensate them. The prices will never come down again for them (unless there is deflation - which will be an even worse fate).

[Alberto-ep]

People dont understand that the prices of things are never going back down. This inflation is deeper than we think. Those buying groceries are well aware that the real inflation is much over 10%. The increments dont match our income, yet certain investors still earn over $365, 000 in stocks and assets. Wish I could accomplish that.