history shows that falling stockmarket volatility doesnt gibe with expectations for rate cuts one wall street analyst says investors once again penciling in a pivot to rate cuts by the federal reserve arent getting any backup from a closely watched gauge of expected stockmarket volatility one wall street analyst warned wednesday the cboe volatility index  commonly referred to by its ticker symbol vix closed tuesday at 1683 its lowest finish since jan 3 2022 according to dow jones market data the optionsbased index measures expectations for sp 500 volatility over the next 30 days it remains well below its longterm average of around 20 the rub right now is that the rates market shows that traders see a 93 probability the fed will cut rates later this year after one more hike in may which is seen as a roughly 86 probability but history shows that the fed tends to cut interest rates only when stockmarket volatility rises quickly as a result of either a geopolitical shock or a clearly imminent recession said nicholas colas cofounder of datatrek research in a wednesday note see chart below as far as were concerned this is the real fed put colas said the proverbial fed put is the notion that the monetarypolicy makers will cut rates and run to the rescue when the stock market tumbles in real life a put option is an instrument that gives the holder the right but not the obligation to sell an underlying asset at a set price by a certain date  a valuable hedge if the price of the asset goes south so far the vix isnt offering any signs the fed put is likely to be exercised the fed has often but not always cut rates when the vix has spiked colas recalled including right after the 1990 iraqi invasion of kuwait during the 1998 asia crisis heading into the 2002 and 2008 recessions and at the start of the pandemic in 2020 there are exceptions elevated volatility near the peak of the 1990s dotcom bubble came with a higher rather than lower fedfunds rate last years rise in the vix was another case with fed chair jerome powell and fed policy makers embracing stockmarket volatility as they pursued a reduction in consumption and investment he wrote falling volatility expectations come as stocks have seen directionless trade at the start of firstquarter earnings season though indexes remain near their highs of the year the sp 500 dow jones industrial average and nasdaq composite all moved less than 01 on tuesday  the first time all three indexes saw a change of less than onetenth of a percentage point on the same trading day since nov 15 2021 according to dow jones market data seewhy bears cant keep the stock market down despite bad news with the vix below 17 and marking a fresh low this week the market is very far from telling the fed they need to reduce shortterm interest rates colas said between now and those expected rate cuts later this year we will therefore need to see the sort of volatility that pushes the fed to act otherwise why would the fed do anything other than keep rates where they are check outuk inflation shock sparks fear us markets will get caught off guard again this content was created by marketwatch which is operated by dow jones  co marketwatch is published independently from dow jones newswires and the wall street journal