Soft Patch Getting Softer. Is That Raising Odds of Fed Rate Cut in September & Stock Market Meltup?

Last week and this week have been good ones for the recession camp of economists. Indeed, the Atlanta Fed's GDPNow tracking model's estimate of real GDP growth during Q2-2024 dropped from a robust 3.0% on June 26 to half as much today. The Citigroup Economic Surprise Index is the most negative it has been since August 2022 (chart).

We are still in the soft-patch camp. So we've been thinking that the Fed doesn't need to cut the federal funds rate (FFR) this year. We might change our minds on Friday, if June's employment report confirms the latest batch of weak economic indicators. Stocks have already started to discount this scenario as both the S&P 500 and Nasdaq rose to new record highs today. Investors are counting on the Fed Put, i.e., the Fed will avert a recession by lowering interest rates.