The 1967 Rate-Cut Playbook: Rally First, Stagflation Later
The 1967 episode shows why an early rate cut can look bullish before it becomes inflationary.
Markets can rally when policy turns easier, even as the underlying imbalance is only being postponed. Cutting rates does not automatically end inflation; it can delay the adjustment and push demand back into a supply-constrained economy.
That creates a dangerous sequence: a policy-driven bull market first, then stagflation when the bill arrives. The lesson is not to reject every rally. It is to distinguish liquidity from productivity and temporary relief from durable disinflation.
Watch expectations, wages, fiscal policy, and the breadth of price pressure. The policy mistake often looks supportive until the second-order effects appear.
