In the modern era (Post Volcker or from Greenspan onwards) how may rate cut cycles have there been and how many paused after 75 bp's?
The answer, respectively, is 7 cycles and 5 of them paused after 75 bp's
In addition, in 3 of the 5 pause periods the next move in rates was HIGHER.
Periods when 75 bp's of cuts was followed by a "pause"
1. October 1987. The easing cycle lasted 17 weeks and then paused for 7 weeks before the Fed raised rates (that was a meeting cut in February followed by a meeting raise in March)
The easing cycle was put in place on the back of the stock market crash of 1987 i.e. event driven
2. June 1989. The easing cycle lasted 8 weeks and then paused for 12 weeks before the Fed started cutting again.
This was during a period of a housing/banking crisis and deep recession
3. July 1995. The easing cycle lasted 31 weeks and then paused for 60 weeks before the Fed raised rates.
The Fed cut rates due to easing inflation and a rise in the unemployment rate by 4/10ths of a percent but not an economic downturn i.e. a soft-landing scenario
4. Sept 1998. The easing cycle lasted 8 weeks and then paused for 32 weeks before the Fed raised rates.
The easing cycle was once again event driven with a combination of the Russian crisis, the Asian crisis, and the failure of LTCM contributing to the backdrop..
5. July 2019. The easing cycle lasted 14 weeks and then paused for 18 weeks before the Fed started cutting again.
The easing cycle came after unemployment had risen 3/10ths and inflation fell (Core PCE by 4/10ths over the year into July). The Fed was also scarred by the slow response they had in the GFC and vowed to be more nimble this time. The Fed started cutting again as COVID hit
December 2024?????. The easing cycle came as Core PCE fell 7/10ths to 2.6% (expected to be back up at 2.8% in October number released at end of this month) and unemployment rose 7/10ths to 4.3% (Expected to be at 4.1% in the November print in early December- 2 10ths off the highs) and as at the Fed meeting in December the easing cycle will have lasted 14 weeks.
So bottom line
- Of the 7 easing cycles in the last 37 years 5 of them paused after 75 bp's of cuts.
- After 3 of the 5 pauses the next Fed move was a hike
-The 2 pauses that subsequently saw cuts again lasted 12 weeks and 18 weeks respectively - the gap between the December and January meetings is 6 weeks.
There is therefore significant precedent for the Fed to consider pausing in December but almost no precedent (absent an extraneous event) for them to resume in January,
In addition, the 2 times they resumed lower historically were with a housing/banking crisis and Covid- High bars at this point.
