The recent rise of the US stock market has set new records, raising concerns about future economic stability.
Historical Achievements of the Stock Market
This week, the capitalization-to-GDP ratio hit 208%, an increase of 43 percentage points since April. This surpasses the previous record of 206% from February, more than doubling the ratio from nine years ago. The last time such high values were observed was during the Dot-Com Bubble in 2000, when it reached 142%. The average over decades is around 85%.
Trump's Demands for Rate Cuts
President Donald Trump has demanded that the Federal Reserve cut interest rates by more than 300 basis points, arguing that it is 'the only way to save the taxpayer from this absurd debt load.' He argued that such cuts could lead to significant savings on national debt payments.
Economic Consequences of Possible Rate Cuts
Analysts warn that if rates are cut, asset prices may experience a sharp increase. The S&P 500 could exceed 7000 points, and prices for gold and oil could also rise significantly. However, lower rates could exacerbate inflation, negatively impacting purchasing power. Furthermore, economists indicate that ongoing budget deficits cannot be resolved by simple rate cuts.
The rise of the US stock market and Trump's demands for rate cuts cast doubt on long-term economic stability, highlighting the need for deeper reforms in budget policy.
