I was expecting a conservative quarter point reduction, but it seems like the Fed is feeling bullish about inflation and concerned with the labor market, which has cooled much faster than was previously predicted.
What do you think? Will this move come with the positive effects while keeping inflation below 3%?
I was surprised that they went for half a point; I expected a quarter. Are you concerned that we could see another spike in inflation?
Anecdotally, I’ve seen a lot of friction in the job market over the last year, so hopefully this is the signal that the market has been waiting for to green light some of the projects that have been getting put on hold due to “economic conditions”.
Inflation risk is more likely from a US China trade war or conflict escalations in eastern Europe or the middle east. The interest rate was a pretty blunt instrument to combat COVID induced inflation; but it’s the only one the Fed has.
I’m concerned the stock markets are already overvalued; (edit: S&P500 used for these numbers) up 17% YTD over 85% on a 5 year mark… that’s borderline bubble; throwing more cheap money at it isn’t what we need at the moment; a more cautious return to lower rates is called for in my opinion. Give the markets time to digest and use the meeting minutes to signal likely further declines.
Agree about the stock markets being overvalued. However, I disagree about the impact of the rate cut on the market. I expect that many investors have been shoveling money into the s&p 500 because it has been the most reliable way to make a return that out paces inflation. As the rate comes down, I’d expect more investors to return to riskier markets and ventures because the opportunity cost is lower and the potential returns are worth it.
Cutting the rate gives CFOs some breathing room, which could go a long way toward creating some new jobs.