As expected, the Federal Reserve cut their interest rates by a quarter of a percent. We outlined this scenario in one our recent blog posts where we said the market could temporarily sell off is everything goes as expected. Needless to say, the market peeled off a few points.
In his speech, Powell said: "The committee moved from expecting rate increases this year to a patient stance about any changes and then to today’s action." This shows the trend to which the Fed has been moving towards. The next step, in our opinion is more rate cuts to further "support the expansion" and further artificially inflate stock prices.
When questioned about future rate cuts, Powell said he doesn't believe that this is the start of a lengthy cutting cycle, instead, it is a mid-cycle adjustment. After he said this, the market started to sell off heavily as confidence for future rate cuts was lowered.
When questioned again, he then said: "Let me be clear. What I said was it’s not the beginning of a long series of rate cuts. I didn’t say it’s just one or anything like that."
After that was said, it sparked a short term recovery in the markets, since he was hinting that this might not be the last rate cut.
What to Expect Going Forward
Despite what Donald Trump or other financial media outlets say, the US economy is performing very poorly. A whole separate blog post can be done about that topic. What you can expect going forward from the economy is even weaker numbers. That is the most likely scenario in our opinion. These weaker numbers will cause the FED to act and cut rates even further. Stocks and bonds will continue to rally until they crash (they are in a huge bubble), and precious metals will continue to gain as well.
Historically, the stock market performs very well the following months after a 25 basis point cut, and we think the same thing is going to happen this time around as well and new all-time highs will be hit soon despite the sell off. This rate cut sent a signal to investors that the FED has their backs, and that they are willing to do anything to "support the expansion" for as long as possible. Take a look below at how 25 basis point cuts have historically been a positive for the stock market.