As I dimly recall from
B-School, conceptually, lower
interest rates are good for markets; higher rates are bad. At a simple level, lower rates are good because they stimulate
growth through lower borrowing costs AND lead to higher discounted valuations for earnings (actually,
free cashflow) streams. (Let's leave exchange rates out of it for now!) BUT in doing so they can lead to economic overheating, and
inflation, if too high, is a
Bad Thing for umpteen reasons battled out in academia and the markets over the last million years or so. (More
here.)
So all that is to say that the
US markets swung wildly last night - inflation came in higher than expected (booo! hissss!! The Fed can't cut for fear of stoking inflation further!) but then it appears that growth is even more at risk (booo! hissss!!... No! Wait! That's good, because the Fed will probably cut! Hurray!)
But inflation and low or negative growth... I donno... doesn't sound all
that appealing to me.
Stumble It!
Posts
No comments:
Post a Comment