The Fed kicked off this easing cycle back in September of last year.

And assuming no surprises tomorrow, they will have since cut rates by 175 basis points, to the range of 3.50%-3.75%.

When they started this cycle, the Fed Funds Rate was 283 basis points ABOVE the rate of inflation (PCE).   

As of tomorrow, it will be about 83 basis points above the rate of inflation — still restrictive, a headwind on economic growth.

When they started this easing cycle, the yield curve (10-year yield minus 2-year yield) was just returning to a positive slope, after two years of inversion.

And as we discussed at the time, yield curve inversions are historically predictors of recession.  And when the curve turns positive again, it tends to indicate an economy has either entered or is about to enter recession. 

But we haven't had a technical recession (two consecutive quarters of GDP contraction).  Instead we've had an economy that will have probably grown at an average annual rate of around 2.5% by year-end.  Keep in mind, that's growth above what the Fed thinks is the long-run potential of the economy (which is 1.8%).

So, do they think 2.5%-3% growth is excessive (above potential), and therefore must be inflationary?  Is this why they maintain a restrictive stance?  

It seems that way.

But also keep in mind, 3% real GDP growth is "average" in average times (5%-6% nominal growth).  And it's probably recession, in an economy that's still digesting $7 trillion of money supply growth in five years (over 40% M2 growth).

As we've discussed over the past few years, here in my daily notes, we should be getting a much bigger bang for our buck.  But the Fed has been, and continues to be a headwind to growth.