For me, and I think for most investors, today's outcome was never really in doubt. Once we had the August labor report in hand, and we learned that the labor market is flatlining. It was a certainty the Fed was going to take out more insurance against downside growth risks and cut rates today. What we didn't know was whether the reaction function would change. Would the Fed speed up its pace of rate cuts? Would the destination for rate policy become lower in this cutting cycle?

The answer, unsurprisingly, is the Fed now intends to get to neutral faster than it intended to before. It intends to cut rates now to 3.5%, which is the upper bound of neutral by the end of next year. What's left unclear is whether and when the Fed cuts below neutral under different Fed leadership. After Fed Chair Powell is replaced, there is a large and growing risk that will have a different monetary regime.

Just look at the SEP. There was a glaring outlier dot for 2025 Fed funds at 2.75%. 2.75% is below neutral and 75 basis points below anyone else that was submitted to the SEP. If that dot belongs to newly minted Fed Governor Stephen Miran, a fair assumption. And if his views are a proxy for President Trump's wishes, then it's just the latest reminder that President Trump wants easy monetary policy.

And if the President wants easy monetary policy, that's what he's going to get. It's the key risk to our benign modal outlook of a muddle-through scenario. The risk is that we overheat the economy, with a fed that delivers loose monetary policy despite loose fiscal policy and historically high tariffs and a smaller labor force and exceptionally easy financial conditions.

Now, maybe markets will initially cheer that outcome. It's a policy mix that would deliver a nominal GDP boom and probably a boom in nominal earnings. But in our judgment, at some point we would hit an inflection point, after which markets judge the boom is unsustainable and a policy mistake. Stay tuned and good luck.