Lower Interest Rates Might Be a Double-Edged Sword

Cloudy With a Chance of Rate Cuts

Interest rates have soared since the Federal Reserve kicked off its campaign to fight inflation. But after holding rates steady at its last two meetings, and inflation cooling down in recent months, the market predicts rate cuts could be in our future.

For anyone shouldering an expensive debt burden, rate cuts sound great. But there’s a flipside.

A Double-Edged Sword

Rate cuts could bring relief for consumers, as well as companies, which may have positive effects for the stock market.

But there’s no such thing as a free lunch, and rate cuts could mean the economy needs a boost. The same indicators that might move the Fed to slash rates, like waning retail spending and a cooling labor market, tell us about potential underlying economic weakness.

Weathering Economic Crosswinds

The bottom line is this: While first reactions to rate cuts may be positive, the question is whether it’s recession worries that are stoking them.

For investors, this means it could be time to think about how their portfolio might react to the big themes that lie ahead.

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