Fed Minutes Hint at September Rate Cut Sparking Stock Market Rally as Inflation Eases
Wednesday, Aug 21, 2024 3:00 pm ET
The recent release of the Federal Reserve's meeting minutes has pointed strongly towards a potential interest rate cut in September, leading US stocks to rally near the end of the trading session. According to the data released by the US Department of Labor on August 14, inflation in the US has continued to ease. This has bolstered expectations for the Federal Reserve to lower the federal funds rate in September, potentially marking the commencement of a long-anticipated rate cut cycle.
New data revealed that the US Consumer Price Index (CPI) rose by 2.9% year-over-year in July, a slight deceleration from the prior month. However, this rate remains above the Federal Reserve's long-term target of 2%. The gradual decrease in inflation has prompted various analysts to predict a forthcoming rate cut. According to some economists, the recent CPI figures provide more evidence that a 25-basis-point rate cut at the upcoming meeting is likely. Nonetheless, there were opinions suggesting that the pace of the inflation decline has been slowing.
In June, the labor market showed signs of weakening, with non-farm employment figures falling short of expectations. This led to speculation that the Fed might consider a more significant rate cut. However, subsequent macroeconomic data releases have diminished these expectations, leading to a general consensus that a 25-basis-point cut is more probable.
Simultaneously, equity markets reacted positively to the news, with major indices closing higher. The Dow Jones Industrial Average rose by 56.61 points (0.14%), closing at 40,891.58. The Nasdaq Composite added 94.99 points (0.53%) to reach 17,911.92, while the S&P 500 Index increased by 22.90 points (0.41%) to finish at 5,620.02.
Retail giant Target saw its stock surge after reporting better-than-expected earnings for its second fiscal quarter. Conversely, Macy's shares declined following a revision of its full-year sales forecasts.
The minutes revealed that while some participants believed that a rate cut was justified as early as July, the consensus was to wait until more economic data was available before making a decision. Moreover, they underscored the delicate balance between maintaining inflation and achieving full employment, noting that the risks associated with keeping rates high or cutting them prematurely are relatively even.
Following the July meeting, the labor department’s revised report showed a significant underestimation of employment growth for March, with a downward revision of 818,000 jobs. This data has intensified discussions on the labor market's true condition and its implications for monetary policy.
Economists are now closely monitoring upcoming employment data and inflation reports, which are likely to influence the Fed's final decision in its September meeting. Furthermore, Federal Reserve Chair Jerome Powell is set to speak at the Jackson Hole Economic Symposium, which could provide additional insights into the Fed’s future policy direction.
New data revealed that the US Consumer Price Index (CPI) rose by 2.9% year-over-year in July, a slight deceleration from the prior month. However, this rate remains above the Federal Reserve's long-term target of 2%. The gradual decrease in inflation has prompted various analysts to predict a forthcoming rate cut. According to some economists, the recent CPI figures provide more evidence that a 25-basis-point rate cut at the upcoming meeting is likely. Nonetheless, there were opinions suggesting that the pace of the inflation decline has been slowing.
In June, the labor market showed signs of weakening, with non-farm employment figures falling short of expectations. This led to speculation that the Fed might consider a more significant rate cut. However, subsequent macroeconomic data releases have diminished these expectations, leading to a general consensus that a 25-basis-point cut is more probable.
Simultaneously, equity markets reacted positively to the news, with major indices closing higher. The Dow Jones Industrial Average rose by 56.61 points (0.14%), closing at 40,891.58. The Nasdaq Composite added 94.99 points (0.53%) to reach 17,911.92, while the S&P 500 Index increased by 22.90 points (0.41%) to finish at 5,620.02.
Retail giant Target saw its stock surge after reporting better-than-expected earnings for its second fiscal quarter. Conversely, Macy's shares declined following a revision of its full-year sales forecasts.
The minutes revealed that while some participants believed that a rate cut was justified as early as July, the consensus was to wait until more economic data was available before making a decision. Moreover, they underscored the delicate balance between maintaining inflation and achieving full employment, noting that the risks associated with keeping rates high or cutting them prematurely are relatively even.
Following the July meeting, the labor department’s revised report showed a significant underestimation of employment growth for March, with a downward revision of 818,000 jobs. This data has intensified discussions on the labor market's true condition and its implications for monetary policy.
Economists are now closely monitoring upcoming employment data and inflation reports, which are likely to influence the Fed's final decision in its September meeting. Furthermore, Federal Reserve Chair Jerome Powell is set to speak at the Jackson Hole Economic Symposium, which could provide additional insights into the Fed’s future policy direction.