Stocks Up As Investors Expect More Rate Cuts

by Darren

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Investors in the stock market think of rate cuts as a panacea to the woes of the economy. Or at least that’s what they appear to be thinking when they react like they do to news about the minutes of the Fed’s latest meeting.

The minutes from the Federal Open Market Committee’s Sept. 18 meeting, when Fed governors voted unanimously to cut rates a half percentage point, also showed that officials were concerned that the weakness in the dollar could lead to higher inflation. But the Fed — signaling it is more willing to intervene — also said that the economic outlook was uncertain because of the summer’s credit crisis, and that there were still risks to growth that justified lower rates.

The major indexes were little changed just before the minutes came out, and then rose sharply. Investors were hoping that the Fed would lean toward future rate cuts; central bankers will meet again Oct. 30-31.

“This adds fuel to the fire that the Fed is going to try and reinvigorate the economy with further cuts, and that’s what they are committed to,” said Richard E. Cripps, chief market strategist for Stifel Nicolaus. “The likelihood of having a second cut either this month or at the December meeting seems greater than before the minutes.”

Investors must be thinking that Fed rate cuts will continue to stimulate the economy. Certainly the cuts will keep the dollar low against the rest of the world’s economy. This would further cause an increase in business of U.S. based companies dealing globally. Because of the lack of other “good news” reports about the economy these days, investors are clinging to whatever hope they can.

Do you think more rate cuts from the Fed is good for the stock market?

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