The Fed's Interest Rate Cuts Foreshadowed the Stock Market Correction, and Here's What Might Happen Next
By law, the U.S. Federal Reserve has two primary mandates. First, it aims to keep the Consumer Price Index (CPI) measure of inflation rising at a rate of around 2% per year. Second, it aims to keep the economy operating at full employment, although it doesn't have an official target for the unemployment rate.The Fed adjusts the federal funds rate (overnight interest rates) to influence economic activity when the CPI and unemployment rate deviate too far from where they should be. In 2022, the central bank ratcheted up the federal funds rate to a two-decade high to combat soaring inflation, but with the CPI now mostly under control, it has started reversing that policy.The Fed has cut interest rates three times since September, and although conventional wisdom suggests that is positive news for the stock market, history tells a different story. The benchmark S&P 500 (SNPINDEX: ^GSPC) index just entered correction territory after plunging by more than 10% from its recent record high, and here's what could happen next.Continue reading
By law, the U.S. Federal Reserve has two primary mandates. First, it aims to keep the Consumer Price Index (CPI) measure of inflation rising at a rate of around 2% per year. Second, it aims to keep the economy operating at full employment, although it doesn't have an official target for the unemployment rate.
The Fed adjusts the federal funds rate (overnight interest rates) to influence economic activity when the CPI and unemployment rate deviate too far from where they should be. In 2022, the central bank ratcheted up the federal funds rate to a two-decade high to combat soaring inflation, but with the CPI now mostly under control, it has started reversing that policy.
The Fed has cut interest rates three times since September, and although conventional wisdom suggests that is positive news for the stock market, history tells a different story. The benchmark S&P 500 (SNPINDEX: ^GSPC) index just entered correction territory after plunging by more than 10% from its recent record high, and here's what could happen next.
