If Bernanke cuts rates one more time as expected on Wednesday, what will it mean for stocks?
MKM Partner’s Chief Economist Mike Darda said that, while the Fed is likely to cut another 25-basis points before pausing, he believes it doesn’t need to.
A “one and done” strategy is the conventional prediction on Wall Street for next week’s 2-day meeting, Darda said, as the central bank seems to feel it needs to guide market expectations, but it could just as easily not make any additional cuts. That could rally the dollar, possibly put a halt to oil’s run and maybe even temporarily quell the worries over food inflation.
After all, Darda said, as of now interest rates are already below the current and expected rate of inflation (and the federal funds rate is now lower than the 2-year treasury for the first time in two years). That’s a monetary policy that, if continued, is sure to bring consequences, he said.
If the Fed does the expected and cuts a quarter, Darda said he believes it will be accompanied by one or two dissenting voices. Dissention, Karen Finerman said, would probably be the surest signal that no more rate cuts are coming.