Interest rates will not be cut in the USA for the time being. At its meeting on June 19, the Federal Reserve (Fed) left the level between 2.25 percent and 2.5 percent. However, the US central bank is forecasting interest rate cuts in the coming months if the economy deteriorates. The same applies to the European Central Bank.

What Happens When the Fed Lowers Interest Rates

Investors have already priced further expansionary measures by central banks into stock prices. Finally, central banks in India, Malaysia, the Philippines, and Russia have already cut interest rates in response to the slowdown in the economy.

Trade conflict comes to a head

All in all, the economy in the US is stable, but manufacturing is losing momentum. The manufacturing industry is under pressure due to increased tariffs. New taxes are constantly being introduced worldwide. India recently announced plans to impose tariffs on 28 imported products from the United States. In doing so, the country has responded to the US decision to withdraw India’s preferred trading partner status.

Over the past few weeks, investors have kept asking me what happens if the Fed doesn’t cut rates this year. The stock exchanges are certainly sensitive to missing signals from the central bank. I expect stocks to sell out. In general, the Fed’s communication is crucial for investors. At best, the Fed will explain itself again in the coming months to lower interest rates in the event of an economic downturn. At the same time, the central bank should remain flexible in monetary policy. Too determined a tendency to cut interest rates can also scare investors away.