With U.S.-China trade tensions roiling markets, investors are counting on suppor...
NEW YORK - With U.S.-China trade tensions roiling markets, investors are counting on support for stocks coming from a Federal Reserve willing to keep cutting interest rates to help the U.S. economy avoid a severe downturn.
The Fed's 180-degree pivot from tightening monetary policy last year to easing it has helped drive the stock market's overall strong performance in 2019. The benchmark S&P 500The central bank in July cited signs of a global slowdown, simmering U.S.-China trade tensions and a desire to boost too-low inflation as it lowered borrowing costs.
That raises the importance of the newest set of policymakers’ rate-path projections - the so-called dot plot - that will be released along with the rate decision. UBS economists said in a note they expect that will shift lower overall for 2019, but project only two cuts total for the year, which could irk both investors and a U.S. president eager for a more aggressive posture.
Powell, who will give a news conference after the central bank issues its statement, has made comments in the past that have shaken the market, including in July, when he said the bank’s rate cut might not be the start of a lengthy easing campaign to shore up the economy. Of the past eight easing cycles since 1981, four have been “insurance” cycles, when economic problems loom but the economy is not in a recession, while four were pre-recession cycles, according to research from Allianz Global Investors.
The stock market overall has typically responded well to a second rate cut, which Wednesday's would be, with the Dow Jones Industrial Averagerising an average of 20.3% one year later, according to Ned Davis Research. The weakest performance has come when the Fed tried and failed to prevent a recession.
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