 Hello, and welcome to the Minor Issues Podcast. I'm Mark Thornton at the Mises Institute. Well with the last Federal Reserve increase in the federal funds rate and possibly its last increase in this cycle, market participants turn their attention to possible rate cuts. It's been remarkable lately the mainstream media story, the dialogue that just won't seem to change day after day, company in focus, bullish and bearish analysts, and of course the inevitable politics. Basically we've been in a day-to-day stew wondering about the Fed, the interest rates, and of course the stock market. The Minor Issue today is the anticipation of cuts in the interest rate by the Federal Reserve. And Fed officials who are responsible for making those decisions as well as market participants are anticipating cuts in interest rates as early as this year and then for as far as the eye can see. For example, the last increase in rates was fully anticipated above 80% with 16% thinking there was one more cut yet to come. Now if we look at future Fed meetings and their anticipation in the June meeting, basically participants think things are going to stay the same, but by the July 26th meeting, 31% are anticipating a cut in rates with only about 60% remaining the same and 10% looking for another increase. And then as we go out to the September meeting, the percentage of people anticipating cuts rises to 47%. The neutral category shrinks to 30% and those believing in an increase in interest rates basically disappearing. So roughly two-thirds are anticipating at least one cut by the September 20th meeting. Now that rises substantially as you get out to November and then in December, virtually everybody believes that interest rates will be lower than they are now with some participants anticipating four cuts in rates. Now the key thing here is not that eventually rates will come down, but the type of interpretation that we hear and tend to believe in that mainstream media dialogue story is that the Fed in increasing interest rates has worked to wipe out inflation. Inflation is at least subdued possibly in 2024 getting back under the 2% target. Of course, people are also anticipating some vague notion of a recession coming with unemployment picking up, but in just about everybody's estimation, it would be a mild recession if it were to occur. But by October 31st, 90% of people anticipating an easing policy by the Federal Reserve with three, four, or maybe more cuts in order as we go into the fall, market participants are actually expecting more rate cuts than the Fed is talking about. And of course, others are thinking that stock markets are laying low right now, but are potentially soaring in the future. Any number is subject to a lot of different interpretations. So let me be the devil's advocate here for a moment and say that, well, the Fed may have been too hawkish and that the economy and stock markets begin from right now to go into the tank, that unemployment rises faster than anticipated, that stock markets do poorly or crash over the summer and into the fall, and that these expectations of lower rates are simply the Fed coming to the rescue. Another alternative interpretation is that the Fed has been too dovish, too easy, hasn't raised rates quick enough, fast enough, and that the inflation problem, which seems to be subdued and deflating, actually returns. That we start to see a tick up in the consumer price index, the producer price index, that we see new increases in the price of gasoline, fuels, food, wage rates, and so on. Well, under those conditions, what is the Fed to do? Are they going to raise rates again? And what would the stock market expect if inflation returns? And then what does the Fed do in response to that? So while we're hearing one interpretation from the mainstream media, the facts themselves and the possibilities are reasonable that other interpretations are just as viable and just as worrisome, they're just not reported. So over the last year or so, the Fed has been able to rely on simple Phillips curve analysis, where if we have full employment, but inflation is too high, the Fed raises interest rates to push down inflation and driving up the unemployment rate, cooling the economy. But of course, the Phillips curve analysis only holds true for certain periods of time. It has fundamental problems. And it's certainly liable to errors that are very important about the economy based on a misunderstanding of things like what causes inflation or what actually sets the underlying interest rates in the economy or even considerations of important economic issues on the international front, which are typically discounted except in terms of excuses for the Fed to not properly anticipate events and to have the wrong policy in place. In other words, there is a chance that the anticipation of lower interest rates moving forward by in particular market participants do not give a complete green light to the economy or to stock markets. It could simply be a matter that the actual reality moving forward is not matching up with the mainstream story that we get from the media and that we get from the Fed.