Stoking the Fire: The First Post-Recession Rate Cut

August 01, 2019 | Ben Mohr, CFA, Director of Fixed Income, Managing Partner

On July 31, 2019, the Federal Reserve cut interest rates for the first time since the 2008 Financial Crisis from a fed funds target rate of 2.25%–2.5% to 2%–2.25%. This well-telegraphed and long-expected 25 basis point cut, roughly 11 years after their last cut in December of 2008, signals a shift in the Fed’s monetary policy towards one of dovish stimulus after a period of hawkishness from 2015 to 2018 that saw the Fed raise the fed funds target rate nine times from 0–0.25% to 2.25%–2.5%.

This newsletter examines the reasons behind and the initial and potential reactions to the latest interest rate cut, including a look at unemployment, inflation, and the yield curve.

Read > Stoking the Fire: The First Post-Recession Rate Cut

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Ben Mohr, CFA
Director of Fixed Income, Managing Partner

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Scatter chart showing correlation of 10-year Treasury Yield and Correlation of Treasury Yield vs. S&P 500 Return. Chart subtitle: Rising rates have a bigger impact on equities when Treasury yields are much higher than they are today. Chart description: Y-axis shows Rolling 1-Year Correlation: Monthly Change in Treasury Yield vs. Monthly S&P 500 Return, ranging from -1 to +1. X-axis shows 10-Year Treasury Yield from 0-18%. Two series are scattered: Before the Global Financial Crisis in brown and After the Global Financial Crisis in orange. There is some slight overlap of the two around the 3-4% Treasury Yield mark, but otherwise the majority of the Pre-GFC series is to the right of the 4% yield mark and ranges across the x-axis for the full -1 to +1 correlation. The Post-GFC series is primarily above the x-axis, though there are some below, and in the first 4% of yield. March 31, 2021 is highlighted at a correlation of 0.299 and the Treasury yield at 1.74%. Chart source: Source: Bloomberg as of March 31, 2021. Pre GFC: December 1970 – August 2007. Post GFC: September 2007 (FOMC began reducing the federal funds rate) – March 2021.

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