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Dr. Ed was interviewed on Bloomberg Surveillance this morning at 7 a.m (see link below). Ace journalist Lisa Abramowitcz noted that during the summer, we were saying that the economy is resilient and doesn't need much monetary stimulus, which might cause a meltup in stock prices. Now we are saying that if the Fed cuts the federal funds rate (FFR) by 50bps instead of 25bps on September 18 stock prices might go down.
Lisa asked me to explain what changed. Well, we did have a meltup in the stock market through July 16, when the S&P 500 hit a record high as investors anticipated easier monetary policy. But in early August, the carry trade started to unwind when a weak July employment report convinced many market participants that the Fed would turn more dovish (as confirmed by Fed Chair Jerome Powell's Jackson Hole speech on August 23) at the same time as the BOJ was turning more hawkish.
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