I hope you are all well. Fall is in the air in Asheville with some nights cool enough to leave the windows open.
The Federal Reserve is widely expected to begin a series of rate cuts when their meeting concludes on Wednesday. There is still debate among the talking heads about whether the cut will be 0.25% or 0.50%. As you remember, the Federal Reserve began hiking rates in March 2022 in response to the surge in inflation caused by the pandemic. While few prices have declined to pre-pandemic levels, the rate of inflation has come back down significantly and is closing in on the Fed’s target of 2%. That coupled with a softening in the labor market (current unemployment is 4.2% compared to 3.6% in 2022) give the Fed the opportunity to bring short-term interest rates more in line with economic conditions.
Moves in interest rates – up or down – can impact the stock market. What should we expect? The easy answer is higher volatility over the short term. It typically takes some time for the market to figure out what the new interest rate means for the broader economy and for corporate profits. For consumers and businesses, lower interest rates mean low borrowing costs, which should help the economy and in turn markets as well. But that benefit can sometimes be offset by other factors impacting the economy.
The linked article (link) from Morningstar looks back at rate-cutting cycles to offer insights. The short answer is it often depends on WHY the Fed is cutting rates.
If you have questions or would like to talk further about this matter or anything else, please get in touch.
Cheers!
