US rate cut: a breath of fresh air for investors?
Financial markets/economy
Posted by MoneyController on 03.09.2024
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In September it is increasingly likely that the Federal Reserve will also start with its first interest rate cut. What could these cuts mean for the financial markets?
After Jerome Powell's statements in Jackson Hole, it is now almost taken for granted that the Federal Reserve (Fed) will also cut interest rates soon. As Jenni Reid writes on ‘CNBC’, this will bring the Fed into line with other central banks that have begun a cautious policy of interest rate cuts after the peaks of recent months: the European Central Bank, the Bank of England, the People's Bank of China, the Swiss National Bank, the Swedish Riksbank, and the central banks of Canada and Mexico.
The interest rate cut follows a period of historically high interest rates: so far, central banks have focused on reducing inflation. Now that inflation has been reduced - although the 2 per cent target still remains to be reached - central banks can proceed to lower the cost of money slightly, with the aim of giving a (small) breath of fresh air to the economy and perhaps also to investors.
It is impossible to say what will happen in the financial markets now. Nevertheless, as Reid's article on ‘CNBC’ also states, Manpreet Gill, chief investment officer for Africa, Middle East and Europe at Standard Chartered, believes that the signal of an interest rate cut - especially in the US - was a signal that markets were waiting for and that, for some analysts, is perhaps behind the recent market recovery.
However, Reid's article in ‘CNBC’ also includes the opinion of Arnaud Girod, head of economics and cross asset strategy at Kepler Cheuvreux. On the one hand, a series of interest rate cuts could mean an increased likelihood of a recession. On the other hand, so far, the stock market growth of large US technology companies seems to have been unaffected by interest rates, which have remained high for many months.
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