• The Fed cut rates for the third time since July on Wednesday
• The target lending rate is now 1.5% – 1.75%
• In the last four times the Fed cut rates, when they stopped at three cuts the economy avoided recession

As expected by the market, the Fed cut rates again today. Jerome Powell signaled that there may be no additional cuts. In the news conference Powell stated, ‘[the central bankers] see current stance of monetary policy as likely to remain appropriate’.

On Tuesday, noted economist Ed Hyman, Evercore ISI Chairman, told CNBC in an interview that a three-cut series was, ‘magic sauce in the 1990s to get growth to stop slowing’. According to CNBC, in the last four periods when the Fed raised rates to keep the economy going when the cuts stopped at three, the market had very strong return over the next year. This was in 1996 and 1998. However, three rate cuts were not enough in 2001 and 2007 and in those periods the Fed continued to cut rates and the economy went into recession. The market rose 25%, 19%, -12% and -42% in the year following the Fed rate cuts.

With just four data points in the series, I wouldn’t draw too much of a conclusion from the data. The key concept we should be taking away is that we are in the late stages of this economic cycle and now we need to watch carefully to see how the economy reacts to the Fed’s rate cuts.

Yesterday, the Q3 GDP growth was revised up to 1.9% from the prior 1.6% estimate. The jobs market is very steady with good job growth and little sign that jobless claims are rising. If we see weakness in jobs growth or a jump in initial jobless claims over a 3-4 week period that would definitely be a poor signal.

So far, Q3 earnings reports have been looked pretty good. Yes, the manufacturing sector, autos and exports are weak. It is important to note that manufacturing is about 12% of the US economy so, it is possible for sustained growth even if that segment is declining.

The market was little changed today and given the clear message that Powell is sending it seems to me we have a 70%+ chance that recession will be avoided at least until late 2020. By this I mean that market uncertainty based on rates shouldn’t be the primary factor. Now it comes down to the economy, does it sustain or skid.

Now we watch and wait.