Economist: The Federal Reserve's premature rate cut may lead to a rebound in inflation next year

Economist and Honorary Business Professor Peter Morici of the University of Maryland recently wrote that premature interest rate cuts usually lead to a rebound in inflation, but in the short term, if the United States can avoid an economic recession, rate cuts should boost stock prices. Since the 1970s, over 100 instances of inflation across 56 countries have shown that early rate cuts typically result in an inflation bounce back, leading to more unemployment and greater macroeconomic instability. On average, it takes more than three years for tight monetary policy to eliminate inflation; however, the Federal Reserve launched this policy just 30 months after raising rates. Yet even if inflation heats up again, stock market investors should benefit. In the forty years before the global financial crisis erupted in 2008, U.S.'s average annual inflation was at 4.0%, ten-year U.S Treasury bond yields were at 7.4%, current home yield was at 5.6%, and SP500's average annual return was at10.5%. In short term , if US could avoid economic recession , low interest rates should boost stock prices.