2024 Q1 Market Commentary…
For some portfolio managers and investors, the desire for Fed interest rate cuts is akin to that of a sugar addict’s desire for his or her next candy fix. Both are signs that there are greater problems afoot. I’ll stick with the interest rate discussion since I’ve been known to enjoy one too many desserts, and I don’t qualify as a pillar of optimal health.
An interest rate cut is done for one of two reasons (or both): 1) to stimulate a weak economy; or 2) to dig an economy out of recession. Money is less expensive to borrow when rates go lower, which allows consumers to consider more and bigger purchases. In terms of credit, lower rates increase purchasing power, which can have a ripple effect as it stirs up more economic activity. Nevertheless, a rate cut is still an admission that the economy is not in good health. The reality is just because we have more credit capacity to work with doesn’t mean we should use it. See www.usdebtclock.org for reference.
