It seems markets are now assuming a rate cut is already locked in, given the Fed's commitment to cease trimming its balance sheet by September.
This dovish reversal means liquidity is flooding back into stocks and bonds, and so stocks are rising as once again "the Fed has our backs."
Now wait a minute--the market is rising because growth is softening and also because growth has resumed? Sorry Stock Market, you can't have it both ways. Either the global economy is stagnating, forcing central banks to flood the financial system with more liquidity, or growth is resuming, in which case raising interest rates are back on the table, especially if wage inflation kicks in.
Many observers have noted that the sharp decline in Treasury bond yields is signaling fear that the global economy is recessionary, and central bank goosing isn't going to reverse the slowdown. Meanwhile, stocks are schizophrenic: going up because growth is slowing and Fed rate cuts are now in the bag and going up because growth has resumed.
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