Stock markets too optimistic: Fed won't cut interest rates if inflation is higher than unemployment rate - financial expert opinion on the current situation

Stock markets too optimistic: Fed won't cut interest rates if inflation is higher than unemployment rate - financial expert opinion on the current situation

According to a report by finanzmarktwelt.de,

Are the stock markets too euphoric given the still high inflation? According to a report from Bloomberg, the Federal Reserve may not cut interest rates if inflation is higher than the unemployment rate. This is what the strategists at Bank of America Corp. noted. This could pose major risks to investors who were hoping for interest rates to fall.

In the past, the Federal Reserve has rarely cut interest rates when inflation was higher than the unemployment rate. This is currently the case, which can be attributed to five such cases in the last 90 years. Historically, such rate cuts have been triggered by wars or recessions. These are important facts that investors should consider, as the stock markets could react very inconsistently in this situation.

Investor behavior is already showing a tempering of optimism, with equity funds recording outflows of $7.1 billion in the week ended January 10. This suggests that investors are already becoming cautious as they assess the future course of monetary policy. The debate on Wall Street over the path of rate cuts is also ongoing, and although inflation data is rising, many still expect six to seven cuts in 2024, Fed Fund Futures show.

Stagnant shipping in the Red Sea due to attacks and conflicts in the Middle East has also led to rising oil prices. Such geopolitical events can also trigger inflation and affect stock markets.

Overall, it appears that the stock markets are facing major uncertainties arising from the current inflation rate. Investors should therefore be cautious and pay attention to further developments in monetary policy and geopolitical events.