No one wants to see the current economic expansion come to a halt.
After all, here in the U.S., this is the longest stock market bull run in history. And while this can't go on forever, central banks are going to do their part to eke out those final gains for investors.
We recently saw another example of this. Last week, the Bank of Korea cut its base interest rate by 25 basis points. It cited slowing global growth as one of the main reasons. It also said it expects growth for this year to fall below its July projections.
This is very similar to what we're hearing from other global central banks, including our own Federal Reserve. And it's a big reason why the current boom isn't finished yet.
Let me explain...
Federal Reserve Bank of Chicago President Charles Evans recently reiterated his view at an event in Peoria, Illinois.
He believes the central bank should cut interest rates by 25 basis points in October. His reasoning is simple. While he sees more growth ahead, he's worried that inflation remains consistently below the Fed's 2% target.
Evans feels that inflation expectations have worsened this year instead of improving. This is similar to arguments we've heard from Fed Chairman Jerome Powell and St. Louis Fed President James Bullard.
Powell has repeatedly said getting inflation back up to the target is the way to measure the central bank's credibility.
As inflation continues to fall, it makes the Fed's job of achieving its 2% target that much harder. The central bank will have to use rate cuts or asset purchases aggressively to get inflation moving back to that level.
And based on the St. Louis Fed's inflation expectations, that means more stimulus is likely on the way. Take a look...
Expectations are now well below the Fed's 2% target. And while Evans still believes economic expansion will keep going, it may not be as rapid as he thought.
That's another big reason why he believes the Fed's monetary policy may need to involve more stimulus than in the past... especially if it wants to achieve its goals.
Evans said policy needs to be adjusted "in whatever way is necessary to achieve our mandated goals on a timely basis while effectively managing the various risks to the outlook." That's also known as doing whatever it takes.
This commentary gives us more reason to expect the Fed will cut rates once more at its October policy meeting. This is important because, as Evans mentioned, the consumer is driving the economy.
Lower rates typically mean that money becomes more abundant. And if it becomes more abundant, individuals and businesses will borrow and spend more.
If that winds up being the case, it supports economic growth and consumer confidence... which, at the end of the day, is what really counts. And it's what will help drive stock prices higher, too.
This all supports my colleague Steve Sjuggerud's Melt Up thesis. Easy money policies will fuel stock market gains. So while we might be late in this bull market, there's no reason to expect a crash today.
C. Scott Garliss
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