Hargreaves Lansdown Analyst Predicts Wave of Interest Rate Cuts in September

Bittime – Analysts from Hargreaves Lanshdown predict that interest rates will experience a mass reduction next September. Read until the end of the article for a detailed explanation.

Inflation Still Above Target

Quoted from DeepTech Flow, Even though US economic growth in Q2 this year exceeded expectations, core inflation, measured through the Personal Consumption Expenditures Index or PCE, which was higher than expected at 2.9% could be a challenge for the Fed.

Emma Wall from Hargreaves Lansdown stated in a report that although core inflation was still above target, the figure showed a downward trend.

Coupled with strong economic growth, this reduces pressure for the Fed to lower interest rates in the near future.

However, Wall predicts that the Fed, the European Central Bank and the Central Bank of England will cut interest rates in September. He called it a "wave of interest rate cuts."

For investors interested in the US stock market, Wall suggests considering shares of small-cap companies that are considered more attractive, even though major stock indexes such as the S&P 500 have experienced corrections recently.

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Implications for Investors

The news of a decrease in interest rates could affect investors, such as:

1. Opportunities in Small Stocks

A drop in interest rates is generally considered good news for the stock market. However, analysts recommend focusing more on shares of small cap companies that are considered undervalued or have higher growth potential compared to the main stock index.

2. Uncertainty

Predictions regarding monetary policy always contain uncertainty. Factors such as released economic data, geopolitical developments, and market sentiment can influence central bank decisions.

Also Read: CME Group: Prediction that the Fed will maintain interest rates in August!

Impact of Lowering Interest Rates on the Economy

Reducing interest rates is one of the monetary policy instruments used by central banks to stimulate economic growth. When interest rates fall, several positive impacts can occur:

• Rising Consumption: Lower interest rates encourage people to borrow money, thereby increasing household purchasing power and consumption.
• Investment Stimulus: Cheaper borrowing costs encourage businesses to invest in equipment, technology and business expansion.
• Strengthening Property Market: A decrease in interest rates is usually followed by a decrease in mortgage interest rates, which can encourage home purchases and increase property prices.
• Currency Weakening: A decrease in interest rates can weaken a country's currency exchange rate. This can provide benefits for the export sector.

However, keep in mind that the impact of lowering interest rates is not always positive. If not managed well, high inflation, asset bubbles and economic imbalances can occur.

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Impact of Lower Interest Rates on Investment

Investors also need to pay attention to the impact of falling interest rates on their investment portfolios. Some things to consider are:

1. Bonds

When interest rates fall, bond prices tend to rise. However, investors holding long-term bonds may experience losses if interest rates rise again in the future.

2. Shares

Lower interest rates are generally considered positive for the stock market, as they encourage economic growth and increase corporate earnings. However, stock performance is also influenced by other factors such as industry and global conditions.

3. Deposit

A decrease in interest rates will reduce deposit returns. Investors may be looking for investment alternatives with the potential for higher returns.

4. Currency

A decrease in interest rates can weaken a currency, which may affect the performance of investments denominated in foreign currencies.

Conclusion

Lowering interest rates is an important monetary policy tool to influence the economy, but its impact can be complex and varied. Investors need to conduct careful analysis and consider other factors before making an investment decision.

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