The Fed’s decision not to raise rates in 2019 is perhaps the clearest sign yet that the economy is actually slowing down. This might come as a surprise to many given the fact that the S&P 500 is up 12 percent YTD. But markets are forward looking and the Fed’s somber outlook is a cause for concern. It pretty much subdued the momentum in stocks this week, though we haven’t experienced a big sell off yet. That would mean things are looking much worse than they are.
So far Wall Street is happy with Powell’s decision and some have already predicted the possibility of a rate cut in 2020 (read THIS and THIS). Maybe that’s why stocks have been on fire despite signs of a slowdown. Traders expect the Fed to act as it has in the past, coming to the rescue whenever the market throws a tantrum. But for the rally to continue a lot will depend on earnings, tariffs, and the overall health of the economy. It’s not just about rates.