The 1967 Rate-Cut Playbook: Rally First, Stagflation Later
The 1967 rate cuts show how policy can manufacture a rally before the bill arrives.
Phase one was a bull market. Stocks surged, confidence returned, the Fed-will-fix-it narrative dominated, and valuations expanded.
By 1969, wage growth accelerated, commodities surged, and inflation re-ignited. The Fed reversed course aggressivelybut too late. What followed was stagflation: high inflation, weak growth, and collapsing real returns.
The core mistake was cutting rates while fiscal policy remained expansionary and supply constraints were still present. That created more demand without new supply, rising wages, and embedded inflation psychology.
The hard truth is that markets can rally before macro reality sets in. Early cuts may not end inflation; they can delay it. Bull markets can be born in policy mistakes, and stagflation is what collects the bill.
