Fifty basis points and an anniversary
Half a percentage point: after a long wait, the US Federal Reserve's decision is finally known: US short term rateshave been cut to a range of 4.75 to 5%. To say that the news had been expected would be an understatement. Jerome Powel’s speech was then heavily scrutinized and market participants were happy to learn that “the upside risks to inflation have diminished and the downside risks to employment have increased”. They looked at past market sequences and quickly remembered that when the FED cuts rates by 50 basis points or more -provided there is no recession- markets rise on average by 16% in the 6 following months. It's a big “if”, but let’s enjoy the present moment. September also marks a two-year anniversary, the one of the brief interim of Liz Truss as UK Prime Minister before the announcement of unfunded tax cuts triggered a brutal fall of UK assets and what would be remembered as a “Liz Truss moment”. In France, this anniversary has a special resonance. This “Liz Truss moment” could also applied to the USA, where one of the few common points between the two candidates is the limited interest in addressing the debt issue. Central bankers have often “saved the day” for the markets, but there are limits to what they can do, and politicians must not go looking for them. On both sides of the Atlantic, we must be wary of repeating the British episode of September 2022… We are addressing these topics in this newsletter.
