Interest rate news: When the largest economy is thinking of cutting rates
Which country increases their rates from 0 to 5.5 percent in roughly 1.5 years?
No prizes for guessing. Answer is below. In case you still does not understand the reason why US$ is so strong versus the world, this is the reason yeah. If you can get higher returns for that currency, of course you will buy more and drop the ones where the rate is still low because the central bank wants to support the economic recovery. (Yes, my country)
Now they tell the world they may start reducing their rates in 2024!
Not sure if that’s a good news or not. The reason stated is because inflation is now under control. Anyway, when inflation is under control, it would also mean the economy is cooling too. So high rates are not the best to encourage investments. Low rates would be more suitable and that’s why Federal Reserve has now signaled that they are reading for increases in 2024. They could also say that they have successfully kept inflation under control too.
Article in theguardian.com Officials at the Federal Reserve expect to cut interest rates three times next year as US inflation continues to fade from its highest level in a generation. The news sparked a rally on Wall Street with the Dow Jones index closing at a record high.
Projection materials released alongside the Fed’s announcement revealed that most members of its rate-setting open market committee had penciled in three rates reductions for the coming year.
The US’s central bank is closely monitoring the strength of the world’s largest economy, which has remained unexpectedly resilient in the face of the fastest string of rate increases in four decades. Almost 200,000 jobs were added in the labor market last month alone.
Inflation has weakened. The consumer price index, which peaked above 9% in June 2022, rose by 3.1% in November, according to official data released on Tuesday. But many Americans are still grappling with the heightened cost of living, and price growth remains above the Fed’s 2% target. Please read here for the full article: Article in theguardian.com
Do not be too happy, things could change overnight too
No one knew that interest rate was the best measure against inflation. They just tried that and it sort of worked thus far. No one knew if interest rate will be able to prop up economic growth because Japan has tried and was not successful. What we need to always do is to note all these but to continue staying steadfast to our investments by understanding the value of our investments.
For the stock market for example, the prices may rise but it does not mean the fundamental of all these companies have changed yea.
For the property market, even if the prices may rise, it better not be higher than inflation too much. Else, we are looking at potential property bubble too.
If we know all these, we can then take actions not to over-stretch ourselves or not to be too greedy. No one knows exactly when is the peak and when is the bottom yeah. Ability to earn good returns in between these periods are already considered very good. Happy investing.
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