Fed rate cuts and the impact on stocks
The Federal Reserve cut interest rates for the first time in four years at the central bank’s September policy meeting, working to the upside for major US banks. Goldman Sachs (GS) CEO David Solomon said the Fed’s rate-cutting cycle has “renewed optimism for a soft landing” and could be a boon for the US economy.
“I think we’re in a reasonable range as we sit today. The expectation for lower rates, I think, is mostly affecting the way that Wall Street might discount the value of future cash flows, and therefore look at whether or not the multiples that we’re seeing companies trade for today, whether that’s reasonable or not reasonable,” Thomas H. Lee Partners (THL) Co-CEO Scott Sperling tells Seana Smith and Brad Smith.
Sperling is uncertain whether economic activity will rise, as Solomon predicts, if the Fed cuts rates by another 50 to 100 basis points: “It may have an impact on things like the mortgage market, it will have an impact on what is already record high levels of credit card debt for people, potentially.”
Sperling answers a question about how the Fed’s rate cuts and general economic scenario could hang over his own dealmaking, as his firm recently took a majority stake in semiconductor software firm AMI.
“It’s not that companies we buy may not be affected by the economic cycle, but they tend to be less affected. And we’re really looking for more very long term growth drivers that provide significantly greater than GDP (gross domestic product) growth. So I would say that we’re not concerned right now about the near-term cycle…”
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