The Federal Reserve’s interest-rate cuts may disappoint investors

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Subscribe to enjoy similar stories. The longed-for moment is almost here. For two and a half years, ever since America’s Federal Reserve embarked on its fastest series of interest-rate rises since the 1980s, investors have been desperate for any hint of when it would reverse course.

Now it would be a huge surprise if Jerome Powell, the central bank’s chair, did not announce the first such reduction after its rate-setting committee meets on September 18th. Indeed, among traders, the debate is no longer “whether" but “how much". Market pricing implies roughly a 40% chance that officials will cut their policy rate, currently between 5.25% and 5.5%, by 0.25 percentage points, and a 60% chance that they will instead opt for 0.5.

Going by how investors have reacted to Mr Powell’s pronouncements over the past couple of years, you might think this is unadulterated good news for them. After all, America’s stockmarket has spent much of that time cratering whenever it looked like interest rates would stay higher for longer, and soaring on any suggestion that borrowing costs might soon come down. But it is not for nothing that “buy the rumour, sell the fact" is such an enduring mantra in financial markets.

For all that the prospect of rate cuts sets investors’ pulses racing, their actual arrival has often proved disappointing. Consider how share prices have responded to past loosening cycles. Although the three episodes in the 1990s, when Alan Greenspan was at the Fed’s helm, did give the stockmarket successive boosts, this century’s record has been drearier.