The Federal Reserve meets this week, and my oh my are people talking. The market is currently pricing in a 100% certainty that the Fed will cut rates by 25bps (or 0.25%). If this does not happen, expect a minor fit to be thrown by the market. While it may seem like a bit of a premature move to go from a tightening monetary policy to easing so quickly, the chart above tells us that this is actually standard operating procedure. It is just us on the ground who are being told that the economy is so strong that may be scratching our collective heads when we see a move like this. However, economic growth and contraction are conditions that can change rapidly. We also must contend with a global growth slowdown. This is something that we have been talking about for some time. Economic output is slowing around the world, and we do not know if the standard monetary stimulus will correct the decline this time.
The good news in all of this? Well, it seems as though companies have learned from their past mistakes. The cash level that companies have been holding has been a major talking point for quite a while. There has been hoarding of cash, and while quite a bit has been put out in the form of stock buybacks with some increased capital expenditures (or CapEx) recently, companies appear to have enough cash to weather an economic downturn if one is on the horizon. This, of course, does not help individuals, but at least the personal savings rate has rebounded from the all-time low levels reached before the Great Recession.