Thoughtful Money: ‘Buy Everything!’ Says Wall Street As Fed Signals 3 Rate Cuts Are Coming

The holidays hit the stock market early this year. The December meeting minutes for the Federal Reserve hinted at three cuts to interest rates next year. That reflects a bullish outlook that inflation is declining.

It also would make capital less expensive to borrow. That could help improve conditions in the housing market, which have frozen somewhat. And ease off the borrowing costs for businesses and the government.

However, while markets are cheerful now, history suggests it could soon be time to get cautious. That’s because interest rate cuts typically follow ahead of a recession.

They’re a move that occurs too late – and often too little in impact – to stop one underway. That’s because there’s typically a 12-18 month lag for the Fed’s decisions to ripple through the economy.

Remember, the Fed’s policy in raising interest rates was to slow inflation. Ultimately, higher interest rates slow the economy. That means job cuts.

In 2023, high-profile layoffs in big tech companies did little to change the unemployment rate. That could change in 2024.

Right now, the thought of interest rate cuts next year have sent all assets higher. That includes stocks, bonds, cryptocurrencies, and commodities.

In a rate cut environment ahead of a recession, all assets could see their price gains reverse instead.

That suggests that investors should look to get cautious once the Fed starts to cut interest rates. While it might simply be an abundance of caution, it could help reduce losses in a market selloff.

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