The Federal Reserve’s favorite inflation gauge cooled in October. For Wall Street, it’s yet another sign that the central bank’s chairman, Jerome Powell, may be willing to end his more than 20-month-long interest rate hiking campaign sooner rather than later.
That’s great news for consumers and businesses, which have struggled to cope with rising borrowing costs and inflation over the past few years. Fast-growing companies, in particular, often rely on debt to invest in their expanding businesses, and the end of interest rate hikes would remove a significant earnings headwind for them going into 2024. The prospect of interest rate cuts would be even better for their shares. Not only would many companies get a boost to earnings due to lower borrowing rates, but investors’ alternatives to stocks—mainly Treasuries and corporate bonds—would provide a lower return. That would mean more money flowing into the stock market.
