Stock
markets
are
likely
to
react
decisively
after
a
cut
to
interest
rates
if
history
repeats
itself,
according
to
a
CNBC
Pro
analysis.
The
U.S.
central
bank
is
expected
to
keep
interest
rates
steady
this
week
but
could
hint
at
relaxing
its
monetary
policy
stance
as
soon
as
September.
Any
September
decision
to
lower
the
Fed’s
target
range
would
be
the
first
time
interest
rates
have
fallen
since
the
hiking
cycle
began
in
March
2022.
CNBC
Pro
analyzed
stock
market
data
over
the
past
six
tightening
cycles
since
1982,
when
the
Federal
Reserve
switched
to
targeting
the
federal
funds
rate.
The
analysis
found
that,
on
four
occasions
the
S
&
P
500
had
risen
by
double
digits
within
a
year
after
a
rate
cut
The
analysis
also
revealed
that
the
S
&
P
500
had
set
the
direction
of
travel
for
annual
returns
within
three
months
after
a
rate
cut.
When
stocks
rose,
on
average,
they
were
up
6%
in
the
quarter
immediately
after
the
cut
and
up
16%
in
the
12
months
after
the
cut.
However,
stocks
fell
soon
after
the
rate
cut
in
2001
and
2007
by
13.5%
and
20.6%,
respectively,
due
to
the
dotcom
crash
and
the
global
financial
crisis.
Three
months
after
the
cut,
the
S
&
P
500
was
down
by
11%
on
average
on
those
two
occasions.
The
current
tightening
episode
is
the
seventh
in
the
past
40
years.
Historically,
the
Fed
has
cut
rates
because
the
U.S.
economy
was
heading
into
a
recession
or
experiencing
a
notable
growth
slowdown.
Uniquely,
under
current
economic
conditions,
the
Fed
will
be
cutting
when
the
economy
continues
to
grow.
The
latest
data
shows
that
the
U.S.
real
GDP increased
at
a
2.8%
annualized
pace
adjusted
for
seasonality
while
inflation
declined
0.1%
month-on-month
in
June,
putting
the
annual
rate
at
3%
,
around
its
lowest
level
in
more
than
three
years.
While
nominal
rates
peaked
at
11.5%
at
the
end
of
the
1983-84
episode,
the
current
target
range
of
5.25%-5.50%
is
the
highest
this
millennium.
Rates
peaked
at
2.375%
in
the
2015-18
episode
but
were
close
to
the
current
peak
rate
at
the
end
of
the
2004-06
episode
at
5.25%.
The
current
tightening
cycle
is
also
notable
for
being
the
most
aggressive.
The
Fed’s
target
range
was
raised
by
525
basis
points
in
roughly
17
months,
“thus
larger
than
the
cumulative
increases
in
the
other
six
episodes,”
according
to
Kevin
Kliesen,
economist
at
the
Federal
Reserve
Bank
of
St.
Louis.
