US central bank expected to cut rates by 25 basis points to a range of between 4% and 4.25 % this week
A US Federal Reserve rate cut this week is already priced into US stocks, and the big question now is whether it will be the last.
Famously, the stock market perceives any rate cut by the US central bank like a punchbowl at a party. A cut excites the risk-taking, party mood on the stock market by making it cheaper to borrow money. Investors can use the cheap credit to buy stocks “on margin”, and corporations can splash out on buying other corporations. Inflation follows these excesses as inevitably as a hangover follows the consumption of the punch.
Fed chairman Jerome Powell has warned repeatedly that this is no time for any recklessness, especially with inflation already on the rise. That’s why many Wall Street economists expect him to put a strict limit on the rate cut this time around.
