Tim Duy, Columnist

The Fed Is Likely to Make an 'Insurance' Rate Cut

Central bankers won’t wait this time until the economy is already in a recession to ease monetary policy.

May 22, 2019 at 9:00 AM UTC

Tim Duy is a professor of practice and senior director of the Oregon Economic Forum at the University of Oregon and the author of Tim Duy's Fed Watch.

Expect the Fed to do investors a favor and keep the bull market going.
Photographer: Jeff J Mitchell/Getty Images Europe

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With the bond market pricing in at least one interest-rate cut by the Federal Reserve this year, there’s a debate whether such a move would only serve to benefit riskier assets. Federal Reserve Bank of Kansas City President Ester George recently said lower rates might spur asset price bubbles, create financial imbalances and eventually lead to a recession. Perhaps, but the cause-and-effect isn’t that simple.

In all likelihood, if the Fed lowers rates well ahead of a recession, then risky assets will probably gain. But if those cuts come too late, then risky assets will suffer through a recession until they see the light on the other side.