If the Fed does not pivot in September, the market will get a massive selloff.
The rate cut is 100% baked in, question is if its 25bps or 50bps.
Yes, Govt do not want a recession nor a crash during an election year. That said, 2008 and 2020 were election years and they had massive crash. Govt of the day can mask the negatives to their best ability and even use their PPT to support markets (as did Trump in 2020).
But when the score is known across by everyone, even passive investors who said they would invest for the long term would be tempted to have a change of heart.
A crash would spearhead the recession (as did 1987, 2000, 2008), not recession inducing the crash.
When we get the crash, the Fed would cut rates fast and hard and do QE and give Govt another excuse for a large stimulus, to get out of recession quickly. And that would re-ignite inflation, to cause stagflation, rendering a protracted period of subpar growth with much higher inflation. Rates would normalise and markets could stay in winter for a longer period.
