Fed “pause” may not be good this time for equity markets – Morgan Stanley

Equity markets have benefited in the past from the Federal Reserve’s pauses on interest rate hikes. But given current conditions, history may not repeat itself, economists at Morgan Stanley report.

Fed may now be done with its rate hikes

“Morgan Stanley's economist forecasts the Fed won't make additional rate hikes or cuts for the rest of this year. In market parlance, the Fed will now pause.”

“In 1985, 1995, 1997, 2006 and 2018, buying stocks once the Fed was done raising rates resulted in good returns over the following 6 to 12 months. And this result does make some intuitive sense. If the Fed is no longer increasing rates and actively tightening policy, isn't that one less challenge for the stock market? current data suggest higher inflation and a sharper slowdown than past instances where the last Fed hike was a good time to buy. And for these reasons, we worry about lumping current conditions in with those prior examples.”