Why do rate cuts sometimes lead to market crashes?

🔥 📰 SOME THOUGHTS ON RATES AND MARKETS 🔥 📰 The Fed has resumed its easing cycle with what Chair Powell described as a “risk-management” cut. Initially, the decision appeared dovish, as the 2025 dot shifted lower, signaling scope for back-to-back cuts over the remainder of the year. Yet Powell’s press conference cooled market enthusiasm, underlining that while risks to the labor market have clearly risen, the danger of entrenched inflation cannot be ignored. The updated dot plot showed median rate expectations for the years after 2025 moving lower, though still standing above what markets are currently pricing, while the long-run median projection held steady at 3%. The combination of softer forward guidance but a cautious tone led to a quick reversal in sentiment: Treasuries, which had rallied immediately after the announcement, sold off into the New York close. Yields ended the session above pre-meeting levels, with the belly of the curve underperforming on both a daily and relative basis.

Why did Treasuries rally after the Fed’s 25bps cut? Simple, because expectations changed. Before yesterday: markets were betting on 2–3 cuts in 2026 which lead to lower yields. Now: new dot plot released shows expectation of only one quarter-point cut in ’26. The path ahead is still uncertain — and that means more volatility until the Fed’s direction comes into focus.

The Fed is set to announce its next move, and the yield curve already shows how much the market has shifted in a year. Here’s what you need to know: 🔹 In Sept. 2024 (red), the curve was deeply inverted. 🔹 By Sept. 2025 (blue), short-term yields had dropped sharply. 🔹 Long-term yields (10Y–30Y) are now equal to or above short-term. 🔗 Full breakdown in the comments below.

The Fed cut interest rates. The markets are cheering, but should they be? The Fed delivered the expected 0.25% rate cut moving the benchmark funds rate to 4.00-4.25%. That’s the lowest in almost three years. But there’s more to it. 1️⃣The Dot Plot: Modestly Optimistic, With Skepticism The Fed foresees two more cuts this year, one more in ’26, another in ’27. Somewhere around ~3% becomes “neutral.” But, nearly half of the committee isn’t sold on aggressive easing—there’s a split, and that’s meaningful. 2️⃣Market Reaction = Mixed Signals Dow up ~260 pts S&P 500 & Nasdaq down, but ripping higher today Short‐term Treasury yields down, long‐term yields up → yield curve still inverted 4️⃣Risk Management Cut” Is Hinting At Something Chair Powell described this cut as risk management. That suggests asymmetric risks, and a Fed more cautious than purely data-driven. 4️⃣Higher Inflation Tolerance The war between full employment vs price stability… looks like employment will become a sharper focus. Warning signs that the Fed may tolerate inflation above target as they balance tapering risk. So what’s the play? ✔️ If you’re in risk assets, you like the idea of more cuts—but you also need to prepare for disappointment & “sell the news” ✔️ Long bonds are still tough: long-term rates have started to move down, but slowly. ✔️ Cash and short duration assets may look boring, but they may be some of the safest places right now. Got gold? The Fed gave the market a gift today. But it also delivered a puzzle. The path to ~3% is visible but far from certain. S&P futures are up sharply because everyone is piling into the market. Still, the risks—political, economic, global—are hanging in the air. #personalfinance #stockmarket #investing

Markets are increasingly convinced the Fed is about to unleash a series of cuts, with futures showing multiple moves priced in through early 2026. Here’s what you need to know: 🔹 Sept. 17 meeting: 88% odds of a 25 bps cut, 12% odds of a 50 bps cut. 🔹 Additional 25 bps cuts in Oct. and Dec. both carry 70%+ odds. 🔹 Jan. 2026 cut odds stand at 43%, implying 100 bps (or more) of easing in 5 months. 🔗 Full breakdown in the comments below.

THE FED’S BIG MOVE: 5 SCENARIOS TO TRADE BEFORE MARKETS REACT Our base case is straightforward: we expect a 25bps cut, with 2–3 dissenters likely pushing for something larger (50bps+). Beyond September, we see the Fed delivering three consecutive cuts from October through January, eventually bringing Fed Funds down to around 3% by 2027. At the press conference, we believe Chair Powell will lean into labor market risks rather than inflation, framing tariff-driven price pressures as transitory. Importantly, we don’t expect him to provide firm forward guidance — the Fed is keeping its optionality open. >>>OUR SCENARIO GRID<<< 1) Fed Hikes (1.0% probability) - Market impact: SPX down 2–4% A tail-risk outcome. Inflation is firming but not hot enough to justify hikes, given the tariff overhang. 2) Fed Remains Paused (4.0%) - Market impact: SPX down 1–2% Another low-probability tail risk. Would require both stronger jobs and hotter CPI than we’ve actually seen. 3) Hawkish 25bps Cut (40%) - Market impact: SPX flat to -0.5% Powell emphasizes improving labor data, striking a cautious tone. Inflation is still running high, but at a decreasing rate. 4) Dovish 25bps Cut — Our Base Case (47.5%) - Market impact: SPX up +0.5% to +1% The Fed sees inflation as transitory, leans toward steady 25bp cuts, and avoids aggressive moves so long as jobs remain weak. 5) 50bps Cut (7.5%) - Market impact: SPX range -1.5% to +1.5% The wild card. Could spook markets if it signals panic, or be taken as the Fed finally catching up to reality. >>>CONCLUSION<<< We continue to anchor around the Dovish 25bps Cut as the most likely outcome. But we’re very aware that Fed Day often turns into a “sell-the-news” event, especially heading into quarter-end when buybacks slow, retail flows fade, and rebalancing pressures mount. That’s why we’re preparing not just for the decision itself, but also for how markets digest it over the days and weeks that follow.

Fed shocks markets with a 25 bps cut — federal funds now 4.00%–4.25%! Quick, hard-hitting recap of the September 2025 Fed decision: near-unanimous vote, dovish dot plot signaling 2–3 more cuts this year, unchanged QT runoff, and shifting emphasis toward employment risks. We break down GDP, unemployment, and PCE inflation projections and explain why markets are rallying — easing, not front-loading. Like & share if this helped you understand the Fed move. More insights at DhandaTheGreat.com #Fed #RateCut #September2025 #DotPlot #Markets

Fed Meeting Wednesday! 25 bps Cut? …Already Priced. The Forward Signal ? …That’s the Game-Changer Markets have nailed a 94% probability for a 25 bps cut on Wednesay. Although that’s not the story, it’s the roadmap for the next 6–12 months which is most important. Will the Fed lay out a dovish glide path? Let’s take a Macro View. 🌍 Global Backdrop: US Growth Holding Firm: Atlanta Fed’s GDPNow pegs Q3 at 3.1% SAAR (as of Sept 10). No cliff edge yet. 📍Europe Stabilizing Eurozone PMI nudged up to 51.0 in August, with manufacturing in expansion for the first time since early 2022. 📍Labor Soft, Not Broken: Jobless claims hit 263k—the highest in nearly 4 years but still far from recession danger. 📍Inflation Slightly Sticky in Spots: August CPI at 2.9% YoY, core ~3.1%, with shelter and tariffs keeping pressure alive. 📈 Why We Think Markets Remain Resilient 1️⃣ Policy Reflex Policymakers know deep sell-offs cost votes and credibility & quick pivots (on tariffs, fiscal moves) are now the norm. 2️⃣ No Classic Recession Flashpoints Growth is intact, inflation is moderating, and unlike 2008 or 2022, rate hikes aren’t on the table. 3️⃣ Fed’s Toolkit Is Back: With rates still near 5%, the Fed actually has cutting room this cycle, something missing for over a decade. 💡 Watch the yield curve as dovish signals could steepen it, creating a tailwind for banks and cyclicals. 🎯 Wild Card: The Messaging Bullish Case: Hints of 2–3 more cuts by year-end will be supportive for equities and credit. Bearish Case: Hawkish tone…yields jump, and risk reprices fast. 📝 OurTake: Cautiously Constructive We expect the Fed to cut and lean into a balanced “dovish but data-dependent” tone acknowledging labor weakness without panicking on inflation. That backdrop can support risk assets grinding higher into Q4. Now if Powell leans hawkish? A 3–5% equity pullback wouldn’t be a surprise #FedMeeting #Markets #Investing #MonetaryPolicy #Economy #markets #insight #macro

The Fed is cutting rates tomorrow. If history is a guide, this would mean the 10-year is going to continue to trend downward over the next 12 months...hopefully. In 6 of the last 7 rate cutting cycles, the 10-year did decline so there is a chance that occurs this time around. A few standout performances to note: 2001 → 10Y Treasury dropped ~50 bps in a year. Thanks to Greenspan and Pets.com 2007–08 → 10Y down nearly 100 bps in 12 months. GFC may have helped. 2019–20 → 10Y went from ~2% to basically 0. No need to mention why. 2024 → Today, we’ve seen the 10Y rise 30 bps since last September. Historically, the 10-Year drifts lower within 12 months. Except when it doesn’t. A few factors that go into the 10 year include Inflation trends, GDP growth, labor market, Quantitatve easing/tightening, US treasury issuance and war to name a few. Looking forward to a wild ride!