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When the rate cut occurred and no recession took place, stocks averaged returns of 17 percent in the following year. But even when a recession took place, stocks were still 8 percent higher.
Here's when investors can expect the next drop in rates, and also what it could mean for the S&P 500 (SNPINDEX: ^GSPC) stock market index. Two investors looking at a series of computer screens ...
Yet as expected, the Fed hit pause on any further changes to the Fed rate this week at its first policy meeting of the new year, leaving its key interest rate at a range of 4.25% to 4.50%.
US interest rates have been at 23-year high for months, yet unemployment is low, stocks have reached repeated record highs and there’s no recession in sight.
Interest rate distortions: Artificially low interest rates can encourage excessive borrowing and result in a buildup of risk in the financial sector. When interest rates rise, these investments (like new constructions in real estate) may fail, exacerbate economic declines, contributing to a recession.
This happens when long term treasury rates fall below short term treasury rates, basically implying many people extrapolate this to mean that there is likely a recession coming.
Additional downward pressure on interest rates was created by rising U.S. current account deficit, which peaked along with the housing bubble in 2006. Federal Reserve chairman Ben Bernanke explained how trade deficits required the U.S. to borrow money from abroad, in the process bidding up bond prices and lowering interest rates. [309]
To be sure, the stock market is behaving in line with Kostin's work on returns and Fed hiking cycles. The S&P 500 is down 2.79% in 2022 so far, while the Dow Jones Industrial Average has lost 1.84%.