Yesterday, the Federal Reserve cut interest rates for the third time by 0.25%. During the press conference following the FOMC decision, Fed Chairman Jay Powell was pretty clear about future policy. It would take a “material reassessment of the outlook” to change the Fed’s policy stance. While this means it is unlikely we will see more rate cuts anytime soon, Powell also made it very clear that rate hikes are off the table, too – something that was not fully priced in by markets. It would require a “really significant move up in inflation that’s persistent” before the Fed starts thinking about hiking.
This pause could serve equities well. Historically, the S&P 500 has recorded very healthy returns after the Fed cut rates by 0.25% three consecutive times before pausing as the economy picked up, research by LPL Financial Research shows.