- The Fed’s interest rate pause is extending the economic cycle.
- Late-cycle economic conditions continue to mount.
- It may be time to prepare for more market volatility.
What a difference six months makes. In the most consequential change for financial markets since the start of the year, the U.S. Federal Reserve put the brakes on its three-year-old interest rate tightening effort. The major policy shift in January provided an immediate boost to sentiment, as investors concluded that the central bank will keep rates steady for the rest of the year.
Reacting to the Fed’s dovish tone, stock prices took flight with a powerful first-quarter rebound that effectively reversed a late-2018 market selloff. A setback in U.S.-China trade talks has tempered equity gains somewhat since, but the Fed pivot and lower-for-longer interest rates have given this economic cycle a second wind. The stage has been set for potentially positive stock market returns ahead. At the very least, central banks aren’t expected to get in the way.