What's going on?
We’re into the fourth down – quarter, sorry – of the year and investors are lining up their next maneuvers. US third-quarter economic growth hut… hut… hiked higher than economists’ predictions – but the Federal Reserve (the Fed) still tackled interest rates again this week.
What does this mean?
Consumer spending led the charge behind a stronger-than-expected American economy last quarter. That might’ve been thanks to some tactical gameplay from the Fed, whose previous rate cuts have made saving less rewarding and should, in turn, encourage spending. That’s especially true since more Americans than ever were working, not to mention earning more than they were the same time last year. Still, inflation – the rate at which prices of goods and services increase – hasn’t risen as much as the Fed would’ve liked. It’s likely hoping that cutting rates further will coach consumers into even more spending that’ll push up prices – and businesses too, whose investment took a pummeling last quarter.
Why should I care?
The bigger picture: Interception!
After its cut, the Fed said it’ll effectively leave the US economy be for a while. So absent an unexpected touchdown or foul ball, the country will be running plays on its own. The signing of an initial US-China trade deal should, for one, help boost demand for American products and could push their prices up. But without an all-encompassing long-term deal – which China doesn’t think is possible – inflation’s unlikely to rise high enough to justify intervention from the country’s economic referee.
For markets: The crowd goes wild!
Stock prices hovered at record highs this week. And given that over 90% of investors correctly anticipated Wednesday’s rate cut, the continued ascent of stocks is instead likely down to two other factors: better-than-expected economic data (which suggests higher momentum this quarter) and companies’ better-than-expected quarterly updates. That also makes it 18 of the last 19 Fed rate cut announcements where stocks have climbed soon after.