Economist: Fed's premature rate cut may lead to a rebound in inflation next year

Peter Morici, an economist and emeritus business professor at the University of Maryland, recently wrote that premature rate cuts usually lead to a rebound in inflation, but in the short term, if the United States can avoid a recession, rate cuts should boost stock prices. Since the 1970s, more than 100 inflation experiences in 56 countries have shown that premature rate cuts usually lead to a rebound in inflation and bring more unemployment and greater macroeconomic instability. On average, it takes more than 3 years for tight monetary policy to eliminate inflation, but the Fed introduced this policy 30 months after tightening interest rates. However, even if inflation heats up again, stock market investors should benefit. In the 40 years before the global financial crisis in 2008, the average inflation rate in the United States was 4.0%, the 10-year U.S. Treasury yield was 7.4%, the existing home yield was 5.6%, and the average annual return of the S&P 500 index was 10.5%. In the short term, if the United States can avoid a recession, low interest rates should boost stock prices. (Jinshi)