Good morning to the smartest corner of the internet. Tuesday brought global markets a momentary breather, but it remains to be seen how long that lasts.

Some commentators and pundits are calling for the Federal Reserve to make an emergency rate cut — something that surely will not alleviate the recent volatility.

Today, we’re unpacking how an emergency rate cut today would stack up to those in the past. (Hint: There is no comparison.)

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No early cut in sight

The next Federal Reserve meeting is slated for September 18.

But this week a growing chorus of analysts and market-watchers have called for policymakers to make an emergency rate cut before that date.

Recession fears aside, those calls are not justified by historical standards.

Over the last four decades, the Fed has initiated an emergency rate move nine times.

Each time policymakers have acted in between official meeting dates it’s been in response to extreme outlier events. 

A few of the past triggers: 

Each of these instances presented not only significant risk to economic stability and growth, but also the potential failures of critical institutions.

Plus, the stock market was usually in the midst of a massive decline — far bigger than what we saw Monday.

“History suggests the bar for intermeeting cuts is extremely high and that conditions on the ground today do not warrant such action,” Bank of America economist Michael Gapen wrote in a note to clients. 

In his view, historical precedent suggests the Fed shouldn’t be close to even considering a move.

Bond market activity at one point Monday showed a 60% chance for a quarter-point cut within a week as stocks, Bloomberg data showed.

And Wharton professor Jeremy Siegel told CNBC that the Fed should indeed make a jumbo rate cut before September.

Meanwhile, Economist Mohamed El-Erian, president of Queens’ College, wrote in a Bloomberg op-ed Tuesday that the Fed should resist the temptation to placate equity investors.

In his words:

"Rather than allow itself to be bullied by markets, as occurred in the fourth quarter of 2018, the Fed should stand on the sidelines and let the market overreaction (and that's what I believe we're seeing in government bond yields) play out.”

For what it’s worth, Tuesday’s market reversal seemed to close the door slightly on an emergency cut.

Dip-buyers capitalized on bargains after the roughly $6.4-trillion wipeout to start the week. 

Still, neither the market bounce nor Fed history changes how weak July’s jobs data looked, or that the Japan carry trade is unwinding at a multi-billion dollar scale, or that futures markets imply 70% odds for a jumbo, 50-basis-point rate cut next month.

For context, the last time the Fed made a half-point rate cut at a typical meeting was in 2008.

Central bankers, for their part, don’t seem keen on an early move.

This week San Francisco Fed President Mary Daly pointed out one surprising jobs report doesn’t mean the economy is crashing.

Then, Chicago Fed President Austan Goolsbee added that falling stocks are not something policymakers should worry about.

"The law doesn't say anything about the stock market,” Goolsbee said. “It's about the employment and it's about price stability.”

Would you make an emergency rate cut if you were the Federal Reserve? Hit reply to this email or let me know on X @philrosenn.

Elsewhere:

✂️ Markets expect massive rate cuts from the Fed. Disappointing economic data has pushed the investing community to look for a strong policy response in the form of 50- or 75-basis-point rate cuts. Traders see a strong likelihood of a half-point cut in September, though prominent figures are still calling for more. (CNBC)

🏘️ Americans are piling on record credit card debt. A Fed survey published yesterday found that credit card balances climbed 2.4% in the second quarter of the year to a record $1.14 trillion — a 48% increase since 2021. Researchers insist that the debt held by US consumers is “high quality,” but remain cautious on delinquency levels in the months to come. (Fortune)

💰️Institutional investors bought the dip. JPMorgan strategists found that retail investors were net-sellers of about $1 billion on Monday during the sharp stock sell-off, while institutional buyers saw $14 billion in net-buying: “We estimate retail investor performance has declined by 10% since the peak in US equities as of today (vs. 8.5% drop in the S&P 500).” (Investing.com)

Rapid-fire:

Last thing:

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