Powell Cuts Rates and Rations
Fed Chair Jerome Powell took a pair of clippers to interest rates yesterday, making investors 0.25% happier. However, the market is one tricky customer! Despite stocks being fed a boost, investors still found a bone to pick. We’re in the aftermath of a massive monetary jolt, and the market doesn’t know which way is up!
Once again, investors are reminded exactly what the stock market is all about! Firstly, money. Secondly, the future of money. Even as Powell announced the rate cut that would essentially make risk cheaper across America, there was no time for celebration. Investors immediately began overthinking the future, the events of yesterday taking a backseat to new expectations for tomorrow.
For those keen on their stock market lore, the last rate cut came in 2008 as the world slipped into financial chaos. It was code red as the housing market crumbled, taking almost everything else with it. As the economy took on water, authorities quite literally bailed it out. Fast forward to the present, and the market’s been expanding at a rate of knots. It’s perhaps unsurprising then that Powell only wanted to dabble with rates, and not risk running out of road by lowering them any further.
Investors hung on every word in his “don’t get used to it” themed speech yesterday. The most viral soundbite was his belief that we’re only “mid-cycle” between a boom and bust. Market watchers are divided on that one. If stock gains this year have been “mid-cycle,” imagine what we’re in for late-cycle!
Finally, when it comes to monetary policy moves as big as this, politics are never far away. Trump was gunning for a cut twice the size of this, but he’s playing his own little game. Investors prefer to think bigger picture! The trillion-dollar question is, “how long will interest rates will continue flying low?” Answer that, and you’re in for a Nobel prize!
