What you’re not hearing about what happens (and what doesn’t) when the Fed starts cutting rates

Markets are betting that the FOMC will cut the funds rate by 50 bp at Wednesday’s meeting, and deliver more than 250 bp of cuts overall by mid-year 2026. That embeds an implicit recession prediction that so far the Fed has not ratified. The conventional wisdom is that all rate-cutting cycles lead to recession, because the start when the Fed is already behind the curve. Of 11 cutting cycles over 50 years, five did not lead to recession within a year; of the six that did, there were two when there was already a recession when the Fed started. Long-term yields have fallen slightly, on average, in prior rate-cutting cycles. But excluding the cycle that began in 2019, in which yields collapsed in the pandemic lockdowns, the average change is zero. Stocks are up, on average, in prior rate-cutting cycles. The onset of a Fed rate-cutting cycle has not been an actionable guide to the business cycle nor asset class returns.