Hey, Fed, Cut Rates, Blow-Up The Asset Bubble, Own The Recession

Additional accommodation this late in the business cycle is likely to push asset prices higher, just as in 1998, when the Fed cut rates by 75 basis points (a basis point is one-hundredth of a percentage point) during the Asian crisis, only to reverse course nine months later by raising short-term rates to the cycle high. Just as Fed accommodation inflated the internet bubble then, asset inflation associated with stimulative policy at this point in the cycle is likely to have a similar impact.