Rate Cuts are at Hand

Rate cuts are almost a lock for the Fed meeting next Wednesday, Sept 17th . Markets are cheering. Politicians and partisans are spinning. But here’s the truth:

The reason for the cut isn’t good.
It’s not about progress, it’s about weakness. The labor market is cracking, and the data is now showing signs that slow yet steady deterioration is now beginning to accelerate.

Construction jobs are slowing. Job openings have dropped below pre-pandemic levels. Continued and initial claims are flashing warnings. And most importantly, the unemployment rate, while still low, is trending higher.

Bond yields dropped hard after Friday’s disappointing jobs report, pushing the 2-year lower and all but sealing the deal for a Fed cut a week from Wednesday. But don’t let that fool you into thinking it’s time to celebrate.

Because what typically follows isn’t an economic boom, it’s the end of the credit cycle.

That means more volatility, not less. A potential recession, not renewed growth at first. This is how cycles work. Not because of political parties or central banks, but because of how humans behave when greed and/or risk piles up.

So yes, rate cuts are coming.
Yes, markets might rip higher in the short term.
But no, that doesn’t mean we’re in the clear.

Let’s walk-through the signs, step-by-step.

Rate Cuts Are Coming — But Not for the Reason You’d Hope

The good news: A rate cut from the Federal Reserve now looks like a near certainty when they meet next Wednesday, September 17th.

The bad news: The reason is a steadily weakening labor market.

The Cracks in the Labor Market are beginning to widen.

Friday morning’s jobs report confirmed what many of us have been watching closely: the labor market is not just softening, it’s now showing signs of accelerating deterioration.

This is a classic sign that we are nearing the end of the current Credit Cycle, which began in March 2020. Topping patterns in employment tend to precede recessions.

Here’s what you’re seeing beneath the surface:

• Continued Claims for unemployment remain elevated.

  

• Initial Claims are carving out a base, a setup that often comes before a spike higher.

  

• Job Openings have fallen below their pre-pandemic highs.

  

• Hiring remains stagnant at cycle lows.

  

Construction Is the Canary in the Coal Mine

If there’s one sector to watch right now, it’s construction. The data suggests it may be starting to roll over. And historically, once construction jobs begin to decline, recessions either follow closely or have already begun.

Add it all up, and we’re seeing a continued uptrend in the Unemployment Rate.

Yes, the rate is still low compared to past cycles, but what matters most is the direction. And the trend is now unmistakably higher.

Bond Yields Signal Fed Cut Imminent

In response to the latest labor market’s now multiple big misses, bond yields plunged on Friday:

Especially the 2-year Treasury yield. That’s a strong market signal that markets are now pricing in lower rates, and fast.

If the 2-year yield continues this downward trend, it gives the Fed both the cover and the pressure to cut rates not just next week, but again in the meetings that follow.

In fact, based on current trends, the Fed Funds Rate could be a full percentage point lower by early next year.

That means President Trump, who has been loudly demanding rates in the 2% or even 1% range, may get his wish for lower rates. Just not as much as he wishes as long as the Fed continues to properly set the Fed Funds Rate. However, he won’t like what it takes to get there.

Don’t Be Fooled by Political Narratives

Here’s a critical lesson: Rate cuts are not typically bullish at first.

Many partisan pundits will try to spin Fed cuts as a sign that the economy is about to boom. But the truth is: when the Fed re-initiates cuts rates after a pause, it’s often one of the final acts of the a credit cycle before the new one begins.

Historically, what follows isn’t massive growth initially. It’s often a major stock market correction or crash and a recession.

And no, this isn’t a failure of the Fed or the government. It’s human nature. Unchecked growth breeds excess, risk-taking, and greed. That’s not a political issue, it’s a cycle as old as markets themselves.

So don’t fall for finger-pointing or ideological blame games. As doing so will only cloud your vision and lead to financial mistakes as the credit cycle continues to play out as it typically does.

Inflation Could Still Complicate the Fed’s Plans

Rate cuts may look like a lock, but they’re not guaranteed. The wild card here is inflation. If price pressures flare up again, the Fed could be forced to delay or scale back its plans to cut in the coming months. That’s why this week’s CPI and PPI reports matter so much.

Here’s the irony: the very weakness in the labor market that makes cuts likely could also act as a check on inflation. A slowing economy reduces demand for goods and services, which means businesses can’t pass along higher costs as easily. Instead, they’re forced to absorb more of those costs themselves. The result of which is shrinking profit margins which, in many cases, are responded to with further job cuts.

So, while tariffs might not cause an immediate spike in inflation, they do create another problem: a long and dragged-out period of stubbornly higher inflation in the 3–4% range. Businesses facing higher import costs will look to recoup those expenses over time, stretching the price hike cycle out.

This is one reason tariffs are so dangerous. They don’t simply raise costs—they set off a vicious cycle: weaker profits → job losses → weaker demand → slower growth → persistent inflation.

That’s why I believe the timing and rollout of these tariffs is a monumental unforced economic error.

What’s Next? A Rally Before the Fall

Before a recession fully sets in, I actually expect stocks to continue surging higher.

That may sound counterintuitive, but welcome to the markets. The truth is, most major moves in the economy and markets are counterintuitive, which is why being consistently profitable as a trader or investor is so challenging.

But don’t worry, I’ll explain exactly why I expect this market rally to continue and how you can actively and safely partake in the shenanigans in a later post.

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