Economist Predicts Impact Of Early Rate Cuts On Inflation And Stock Prices

According to Odaily, Peter Morici, an economist and emeritus business professor at the University of Maryland, recently wrote that premature interest rate cuts often lead to a resurgence in inflation. However, in the short term, if the United States can avoid an economic recession, rate cuts should boost stock prices. Historical data from over 100 instances of inflation in 56 countries since the 1970s indicate that early rate cuts typically result in inflation rebounding, increased unemployment, and greater macroeconomic instability. On average, it takes more than three years of tight monetary policy to eliminate inflation, but the Federal Reserve has implemented this policy after just 30 months of tightening rates. Despite the potential for inflation to rise again, stock market investors are expected to benefit. In the 40 years leading up to the 2008 global financial crisis, the average inflation rate in the United States was 4.0%, the 10-year U.S. Treasury yield was 7.4%, the yield on existing homes was 5.6%, and the average annual return of the S&P 500 index was 10.5%. In the short term, if the U.S. can stave off a recession, low interest rates should bolster stock prices.