Are You Ready for Some Rate Cuts & a Bear Market?

The Federal Reserve’s Monday Night Showdown

As September kicks off with the thrill of the NFL season, the Federal Reserve is gearing up for its own high-stakes showdown. The NASDAQ has taken a hit, down -7.5% from its July 2024 record high and would only need to fall another -13% to 15,000 to be recognized as a bear market…

while Nvidia—the star quarterback on Team AI—has entered a bear market, plummeting a staggering -21% from its peak in June. It’s as if the Federal Reserve finds itself in the final quarter, down by a touchdown, and must decide whether to stick with its game plan—driving inflation down to 2% by letting the NASDAQ fall -20% or more (As we wrote here in Mission Impossible )—or call an audible, slashing interest rates to keep employment stable but letting inflation continue to erode our purchasing power like a game clock winding down.

This moment feels like a scene straight out of Any Given Sunday, where Al Pacino’s character delivers the unforgettable “Game of Inches” speech:

“The biggest battle of our professional lives all comes down to today. Either we heal as a team or we’re going to crumble. Inch by inch, play by play, till we’re finished.”

The Federal Reserve is at the crossroads, facing an economy that’s showing signs of decline. Supply and demand are out of sync, with supply chains building mass amounts of supply and demand cooling off as consumers tighten their belts. Higher interest rates have slowed spending, but inflation remains a persistent threat, eroding purchasing power like a defense that keeps putting pressure on the quarterback. The contraction in the manufacturing sector and the inventory build-up are warning signs—like a football team un able to get into the end zone.

The Fed’s decisions in the coming weeks will be pivotal. Do they stay the course, letting the market fall further in hopes of achieving their inflation target, or do they pivot, cutting rates to stimulate growth, knowing full well that inflation might keep marching downfield?

Just like in football, the margin for error is razor-thin. One misstep, one miscalculation, and the economy could face a deeper downturn—or worse, an inflationary spiral that leaves us all scrambling. As the Fed lines up for its next play, the stakes couldn’t be higher. The difference between winning and losing, between economic recovery and inflationary recession, might just come down to the inches in front of us.

This September, as the NFL season kicks off, remember that the real game to watch is the one being played out in the markets. The Fed is on the field, and the clock is ticking. Will they make the right call? Or will we be left wondering what could have been if only they’d fought a little harder for those inches earlier when inflation was out of control.

The Yield Curve: The Feds Audible Call

The yield curve, teetering on the verge of un-inverting, is sending a strong signal of caution. The Federal Reserve is expected to kick off a series of rate cuts this month, with the market pricing in a 100% chance of a 25 basis point cut and possibly a 50 basis point cut if economic data continues to weaken. But will these cuts be enough to stimulate demand and correct the current supply-demand imbalance, or is the economy facing a more significant challenge that requires a complete overhaul of the playbook?

The Game of Inches: Nvidia and the AI Bubble