In today’s world, markets are being driven more by politics than pure economics. Looking ahead, there are two major scenarios that seem to be unfolding:
1. The Fed stays on track (most likely scenario)
The Fed won’t cut rates anytime soon and will continue with Quantitative Tightening (QT). They’ll try to stick to their original plan, which includes possibly starting Quantitative Easing (QE) toward the end of the year.
But because they didn’t cut rates when the market expected them to, political pressure will rise. Things will start breaking—maybe in the credit markets, maybe elsewhere—and when that happens, the blame will fall squarely on the Fed. The narrative will be: “They waited too long, and now it’s too late.”
2. The Fed pivots early
The Fed stops QT this month and begins cutting rates by June. Markets react positively with a short-term pump maybe even into the end of the year. But it won’t be the strong bull market everyone’s hoping for. Instead, it sets the stage for a full-blown recession in 2026, followed by a painful bear market. And once again, the blame will go to the Fed—and to “Sleepy Joe” for the numbers.
The dream scenario?
The Fed stops QT, starts cutting rates, the markets take off, and a bull market lasts till late 2026. No recession, the economy thrives, and “America is great again.”
But let’s be honest that’s just a dream. The level of manipulation and political interference in the last two years has created too many bad actors and too much structural weakness. Something is going to break.