The Consequences Of Cutting Rates

The FOMC’s 50 bps rate cut last week stimulates an economy that doesn’t need much, if any, extra help, in our opinion. Eric takes a look at the labor market and long-term inflation expectations to describe why we believe easier monetary policy increases the odds of a 1990s-style stock market meltup and risks higher inflation in the future. Even so, our current Roaring 2020s base case is that productivity will allow for more growth with less inflation. Any resulting meltup is more likely to be followed by a correction than a bear market.