"Markets have gone too far in pricing in aggressive Fed cuts. This increases the risk of disappointment."
Markets all over the world are currently pricing in rate cuts, with more than 100 bps expected in the US before the end of 2020 and lower rates also likely in Europe, Japan, Canada, Australia and New Zealand. Promises of interest rate cuts and easier financial conditions will likely keep the Goldilocks narrative alive and help markets to avoid persistent downturns in stock prices.
However, there are still risks of policy mistakes being made by CB: the line between ‘preemptive’ or ‘reactive’ CB cuts is very thin. While a pre-emptive Fed will likely be market friendly for equities, a Fed perceived as reactive, or as starting an aggressive easing cycle, would probably be of concern to investors, as they would start to read higher recession risks in the numbers.