Chamath

On Wednesday, Fed cut interest rates by a half a percentage point. Taking them down off of a 23-year high. We've been talking about this, God, for two years here on this podcast. First rate cut since March of 2020, which is about when we started this podcast. Jay Powell basically said the Fed thinks inflation is coming down to around 2% nicely.

And they don't want the job market to soften any further than it already has. He also mentioned immigration has helped soften the market, the labor market as well, obviously, with all those new people looking for jobs. So in the last two months, July and August, CPI has been at a two handle. We talked about that 2.9% in July, 2.5% in August. Here's the CPI over the last decade.

And they don't want the job market to soften any further than it already has. He also mentioned immigration has helped soften the market, the labor market as well, obviously, with all those new people looking for jobs. So in the last two months, July and August, CPI has been at a two handle. We talked about that 2.9% in July, 2.5% in August. Here's the CPI over the last decade.

Obviously, massive boom in interest that you see there from 2021 to 2023. Many obviously think we're going to have more rate cuts, probably 25 every meeting for a little bit. And Dow's already at an all-time high, surged 300 points on the news. Here's some interesting data about the 50 basis point kickoff cuts. So this is where it gets interesting, Chamath.

Obviously, massive boom in interest that you see there from 2021 to 2023. Many obviously think we're going to have more rate cuts, probably 25 every meeting for a little bit. And Dow's already at an all-time high, surged 300 points on the news. Here's some interesting data about the 50 basis point kickoff cuts. So this is where it gets interesting, Chamath.

Fed only started publicizing their interest rate changes in 1994. Since 94, Fed has initiated a cutting cycle six times. Here's the chart. Take a good look at that. 95, 98, 2019, they started with 25 bps. 01 and 07, after the great financial crisis, they started with a 50 bp cut. So obviously, there was an emergency 50-bip cut in March of 2020 when COVID hit. 01, 07, 2020, very severe situations.

Fed only started publicizing their interest rate changes in 1994. Since 94, Fed has initiated a cutting cycle six times. Here's the chart. Take a good look at that. 95, 98, 2019, they started with 25 bps. 01 and 07, after the great financial crisis, they started with a 50 bp cut. So obviously, there was an emergency 50-bip cut in March of 2020 when COVID hit. 01, 07, 2020, very severe situations.

And what happened in the markets is what I want to discuss with both of you today. In 2001, market fell 31% in the two years after that rate cut. In 2007, market fell 26% after two years. So And 2020, despite all the fears, market ripped 44% over two years. What's the more likely scenario, Chamath? Is this similar to the dot-com great financial crisis or similar to 2020?

And what happened in the markets is what I want to discuss with both of you today. In 2001, market fell 31% in the two years after that rate cut. In 2007, market fell 26% after two years. So And 2020, despite all the fears, market ripped 44% over two years. What's the more likely scenario, Chamath? Is this similar to the dot-com great financial crisis or similar to 2020?

Sax, any thoughts here? Just balls and strikes?

Sax, any thoughts here? Just balls and strikes?

Well, I think a lot of people are commenting on the fact that the only other two times where we've had a 50 basis point rate cut in modern history, it has been just before a recession. So I think this happened in 2001, 2007, right before the recession. And the Fed had to do a dramatic rate cut because they could see in the data that things were weakening.

Well, I think a lot of people are commenting on the fact that the only other two times where we've had a 50 basis point rate cut in modern history, it has been just before a recession. So I think this happened in 2001, 2007, right before the recession. And the Fed had to do a dramatic rate cut because they could see in the data that things were weakening.

So a lot of people are asking the question, well, is that what's going on here? Now, Powell's comments, though, are indicating that the economy is in good shape. He said the economy is in very good shape, basically indicating that they had tamed inflation and that they would look to cut another 50 basis points this year. So Powell's rhetoric is... in a way, at odds with the magnitude of this cut.

So a lot of people are asking the question, well, is that what's going on here? Now, Powell's comments, though, are indicating that the economy is in good shape. He said the economy is in very good shape, basically indicating that they had tamed inflation and that they would look to cut another 50 basis points this year. So Powell's rhetoric is... in a way, at odds with the magnitude of this cut.

So why didn't they just cut 25 basis points? I think people are trying to figure that out.

So why didn't they just cut 25 basis points? I think people are trying to figure that out.

Reading the tea leaves into why 50, because they could just do 25 a month for five months as opposed to 50.

Reading the tea leaves into why 50, because they could just do 25 a month for five months as opposed to 50.

Yeah, if the economy is hot, why wouldn't you tiptoe into rate cuts and just do 25 now?