The US Federal Reserve's Latest Rate-Cutting Cycle: Are We Headed Towards an Economic Boom?
The Federal Reserve made its first rate cut since March 2020, bringing the benchmark rate to a range of 4.75% to 5.0%. Yardeni Research questions whether this signals a move towards easing monetary policy during a potential economic boom.
Historically, the Fed has reduced the federal funds rate by over 500 basis points during easing cycles. Following Wednesday's 60 basis point cut, the FFR futures market is now anticipating an additional 200 basis points of cuts over the next year.
However, previous easing cycles typically started from higher FFR levels. During the 1995 cycle, the Fed only cut the FFR by 25 basis points three times, resulting in a soft landing.
Yardeni Research warns that lowering the FFR too aggressively could lead to an economic boom with increased inflation risks and a potential stock market "meltup" reminiscent of the 1990s.
In conclusion, the Fed's rate-cutting actions could have significant implications for the economy and financial markets. It is important for investors to monitor these developments closely and adjust their strategies accordingly to navigate potential opportunities and risks that may arise.