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The Fed's Interest Rate Cuts Foreshadowed the Recent Stock Market Correction. Here's What Might Happen Next.
The U.S. Federal Reserve has two main objectives. First, it aims to keep the Consumer Price Index (CPI) measure of inflation increasing at a rate of around 2% per year, and second, it wants to keep the economy running at full employment.When the CPI soared to a 40-year high of 8% in 2022, the Fed rapidly increased the federal funds rate (overnight interest rates) to cool the economy down. But with inflation now under control, interest rates are finally heading lower.Falling interest rates normally drive an increase in economic activity, which is great for the S&P 500 (SNPINDEX: ^GSPC) stock market index. However, history shows that the first few cuts are often met with a temporary decline in the stock market, and this time was no exception. Investors might be wondering where we go from here, so let's dive in.Continue reading
The U.S. Federal Reserve has two main objectives. First, it aims to keep the Consumer Price Index (CPI) measure of inflation increasing at a rate of around 2% per year, and second, it wants to keep the economy running at full employment.
When the CPI soared to a 40-year high of 8% in 2022, the Fed rapidly increased the federal funds rate (overnight interest rates) to cool the economy down. But with inflation now under control, interest rates are finally heading lower.
Falling interest rates normally drive an increase in economic activity, which is great for the S&P 500 (SNPINDEX: ^GSPC) stock market index. However, history shows that the first few cuts are often met with a temporary decline in the stock market, and this time was no exception. Investors might be wondering where we go from here, so let's dive in.
