It's All Priced In

👋 Hi, it’s CJ Gustafson and welcome to Mostly Metrics, my weekly newsletter where I unpack how the world’s best CFOs and business experts use metrics to make better decisions.

It’s All Priced In

It was a very happy “Fed Rate Cut Day”, for those who celebrated. The scissors, as expected, came out.

And with that, I come bearing your recurring reminder that whatever you think, is already priced in (I call it “The Ratchet Version of the Efficient Market Hypothesis”).

Jamin Ball summed the recent events up well:

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“It finally happened! The Fed cut rates by 50bps. This represents the first rate cut since the start of the Covid pandemic, and one that has been highly anticipated. There was a little debate on if this cut would be 25bps or 50bps, but we ended up with 50bps. The target fed funds rate now has a range of 4.75% to 5%. The 10Y didn’t change at all, in fact it was slightly up (3.68% last week to 3.72% as of this writing). This goes to show the rate cut was no surprise to the market.”

The takeaway here: The most important interest rate in the country isn't the fed funds rate, which was lowered Wednesday to below 5%, but rather the yield on the 10-year Treasury note, which rose slightly from Tuesday to Wednesday.

For those keeping notes at home, the cost of money is priced off of the 10 year Treasury Note. And given its movement (or lack thereof), it means future rate cuts have always been priced in — and that mortgage rates won't necessarily fall further just because the Fed is now in cutting mode (Source: Axios).

Like many of you, I’m learning a lot about our mysterious economic engine in real time. And that’s wearing my duel hats as a CFO + guy with a prohibitively high mortgage rate.

I called a few of my friends to see if they’d be refinancing (personal or business debt) and the “It’s already priced” in memes started flying off the shelf.

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“There was an analyst I used to work with that would begin almost every note he wrote with "we're not surprised to see ..." even if it was the most unknown thing imaginable. And it became a running joke that he knew all of everything that would happen because it was already priced in.”

-Equity Analyst Friend

So, is December’s rate cut already priced in? Most think another 50 bps will come off the top.

Most likely, yes.

The market has a way of digesting expectations well in advance, leaving little room for surprise. But just because it’s priced in doesn’t mean it won’t still have ripple effects—whether in how companies manage debt or how we navigate our own financial decisions.

And for those hoping the next cut will bring relief, remember: sometimes what’s ‘priced in’ still feels expensive.