Hu Jie Predicts Stabilized Bull Market Despite 'Black Monday' Turmoil
AInvestWednesday, Aug 7, 2024 7:00 am ET
2min read
Hu Jie stated that unless there are special circumstances, an emergency rate cut by the Federal Reserve is unlikely to occur.

This week, the US stock market experienced a "Black Monday" with significant drops in major tech stocks. Market sentiment suggested that the Federal Reserve has been too slow to lower interest rates, prompting some traders to bet on an emergency rate cut.

Hu Jie, a professor at Shanghai Jiao Tong University, noted in an interview that the current turmoil in the US stock market is not enough to influence the Federal Reserve. He emphasized that the Fed typically does not place significant importance on asset prices in financial markets, focusing more on real estate prices.

According to Hu, the Fed may observe and stabilize the financial market in cases of extreme volatility but usually does not act solely because the market is declining. He added that during his tenure at the Federal Reserve under Chairman Alan Greenspan, the stock market was very active, but Greenspan referred to it as "Irrational Exuberance," indicating that it was not a primary concern for the Fed.

Hu Jie believes that after the current deep market correction, the US stock market is likely to enter a relatively stable bull market.

Global markets fell sharply following the US non-farm payroll report last Friday. On "Black Monday," some scholars called for an immediate 75 basis points cut. While this pressure persists, Hu Jie reiterated that emergency rate cuts are rare unless faced with extraordinary situations.

Hu explained that the Federal Reserve considers three main indicators when deciding on rate adjustments: inflation rate, unemployment rate, and economic growth rate. The primary focus remains on inflation. If there's scope, employment and growth rates are also considered.

Hu highlighted that inflation appears to be on a downward trend based on recent data points, indicating no major surprises. He projected that the Fed would use additional data through July and August before making decisions in September.

Regarding secondary factors like the unemployment rate, Hu noted that there are signs of increasing unemployment and economic slowdowns, which could influence rate cuts. The higher unemployment rate and weaker PMI data suggest a weakening US economy.

While some advocate for a swift rate cut, Hu considers such views exaggerated. He underscores that there are no significant indicators necessitating an emergency cut. He acknowledged a slight increase in unemployment but stressed that recent economic data does not warrant such drastic measures.

Hu concluded that without any unexpected developments, the Fed might consider a 25-basis-point cut in September, observing further data before deciding on subsequent moves.

Reviewing recent stock market volatility, Hu Jie attributed the downturn to several factors, including rising Japanese yen rates, a weakening US economy, and concerns over overvalued tech stocks. These combined pressures signaled a significant market adjustment.

Despite notable market fluctuations, Hu asserted that the Fed would likely adhere to its established policy pace, focusing on core economic data and underlying indicators. He expressed optimism for a more stable bull market as dollar interest rates decrease, enhancing liquidity and supporting the US stock market in the long run.

As of August 6, US stock indices experienced a notable rebound, with the Dow Jones Industrial Average rising 294.39 points, the S&P 500 gaining 53.70 points, and the Nasdaq Composite increasing by 166.77 points.
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