By Amanda Cooper is optimistic about the future of the U.S. and global markets.
In some cases, the first rate cut can be the deepest, but that doesn’t seem to be the case at the Fed. Wednesday’s monthly inflation report showed an unexpected rise in core inflation, enough to quell expectations that the Federal Reserve will cut interest rates by a massive half percentage point next week.
Data showed that the core consumer price index rose 0.3% in September from August, which was expected to rise 0.2%, and the annual rate rose 3.2%, which is in line with economists’ predictions.
The difference isn’t huge, but it’s enough to strengthen the dollar against other major currencies and provide some relief to interest rate cut assets like stocks because the economy isn’t slowing.
Rising food prices last month, while falling costs of energy products such as gasoline and electricity, pushed the key interest rate to an annual 2.5% rise, the smallest annual increase since February 2021.
Analysts have been saying for weeks that the market is overbought and are expecting a 50 basis point rate cut at next week’s policy meeting, while last week’s weak jobs report has raised the odds of a half basis point cut to around 40 as early as this week.
Rates are back at 13%, according to CME’s FedWatch tool.
The Fed is more concerned about inflation in the more difficult parts of the economy, such as wages and services. The central bank’s preferred measure, the core personal consumption expenditures index, is currently at 2.6%, slightly above the Fed’s 2% target.
Also, market-based medium-term inflation expectations are already in. The five-year breakeven inflation rate (five-year Treasury yield minus the current rate of inflation) fell below 2% for the first time since early 2021.
Traders still expect a rate cut of about 100 basis points in December, but the inflation data has dispelled some doubts about issues emerging in September.
Short interest rate cuts are typically negative for stocks. But for technology stocks , Nvidia closed up 8.2% and the Nasdaq (.IXIC) posted its best performance in a month.
Thursday’s weekly jobless claims data is expected to cause some volatility amid growing concerns about the world’s largest economy’s ability to create jobs. But traders don’t think the Fed’s first rate cut in four years will be the biggest.
Key developments that will provide further direction to US markets on Thursday:
*European Central Bank interest rate decision
*Weekly US jobless claims
The views expressed are those of the author. They do not reflect the views of Askume News, which is committed to integrity, independence and non-partisanship in accordance with the principles of trust.
