"What are the chances the next time J Powell speaks and mentions the words "Rate Cuts" the markets get a hard on and rally higher?"
That's possible, but the economists could start ringing the alarm bells which might scare the market. What Powell should say is: "we have to throw in the towel on inflation, because if we don't cut rates and quick, the recession will hit the economy like a tsunami".
But Powell has another two problems: 1) The CRE banking crisis, and 2) refinancing the gov debt (7 trillion). And this means he can't cut rates until the banking crisis hits. So the banking crisis has to happen very soon! This is because he has to change the bank fractional lending rules to create the money needed to solve both these problems and he needs a banking crisis to do that.
It works like this. The banks are allowed to lend out more money than what they have in deposits. The extra loaned out money is borrowed from the fed (who prints it). But they have to keep a certain amount of cash on hand for withdrawals. That is currently around 5-8% of deposits. If they drop it to 3% it makes trillions of dollars of fed printed money available to the banks for lending out and spending on other things - like bank takeovers and buying gov bonds.
This printed money is not counted as QE, but it is printed money and adds to the money supply. So, the long term outlook on inflation is bad.
The reason why the fed can't cut rates until the banking crisis hits and the rules are changed, is because the banks wont buy gov bonds after rates are cut, because they fear rates might go back up and they will lose big time. But if they know rate cuts are coming, they will pile into gov bonds and win big time when rates are cut - and this will solve the immediate gov debt problem and the bank cash problem - allowing the fed to put the fractional lending rules back to 5%.
How this banking crisis plays out and how the market reacts to it is the big question? But markets usually use them to shakeout the market. (It has to be bad if they intend changing the banking rules?)
(20min delay)