On 17th September 2025, the U.S. Federal Reserve announced its first interest rate cut of 2025, lowering the benchmark federal funds rate by 0.25% to a range of 4.00%–4.25%.
The decision follows nine months of monetary policy stagnation and comes amid mounting evidence of a weakening labour market and persistent inflationary pressures.
Fed Chair Jerome Powell described the move as a ‘risk management cut’, citing slower job growth and a rise in unemployment as key drivers.
While inflation remains elevated—partly due to tariffs introduced by the Trump administration—the Fed opted to prioritise employment support, signalling the possibility of two further cuts before year-end.
The decision was not without controversy. New Fed Governor Stephen Miran, recently appointed by President Trump, reportedly dissented, advocating for a more aggressive half-point reduction. Political tensions have escalated, with Trump publicly urging Powell to ‘cut bigger’.
Markets responded with mixed signals: the Dow rose modestly, while the S&P 500 and Nasdaq slipped slightly. However, each improved in after-hours trading.
Analysts remain divided over the long-term impact, with some warning that easing too quickly could reignite inflation.
The Fed’s next move will be closely watched as it balances economic fragility with political crosswinds.
The next U.S. Federal Reserve meeting is scheduled for 29th–30th October 2025, with the interest rate decision expected on Wednesday, 30th October at 2:00 PM ET.
The Nasdaq Composite closed at a record high of 21,798.70 on Monday, 8th September 2025. That 0.45% gain was driven largely by a rally in chip stocks—Broadcom surged 3.2%, and Nvidia added nearly 1%.
The broader market also joined the party:
S&P 500 rose 0.21% to 6,495.15
Dow Jones Industrial Average climbed 0.25% to 45,514.95
Investor optimism is swirling around potential Federal Reserve rate cuts, especially with inflation data due later this week. The market’s momentum seems to be riding a wave of AI infrastructure spending and tech sector strength.
Negative news is not affecting the market – but why?
The Nasdaq Composite closes at a record high on Monday 8th September 2025.
Refunds could hit $1 trillion if tariffs are deemed illegal.
China’s Xpeng eyes global launch of its Mona brand.
French Prime Minister Francois Bayrou loses no-confidence vote.
UK deputy PM resigns after tax scandal.
Stocks are rising despite August’s dismal jobs report because investors are interpreting the weak labor data as a signal that interest rate cuts may be on the horizon—and that’s bullish for equities.
📉 The contradiction at the heart of the market The U.S. economy showed signs of slowing, with job numbers actually declining in June and August’s report falling short of expectations.
Normally, that would spook investors—fewer jobs mean less consumer spending, which hurts corporate earnings and stock prices.
📈 But here’s the twist Instead of panicking, markets rallied. The Nasdaq Composite hit a record high, and the S&P 500 and Dow Jones also posted gains.
Why? Because a weaker jobs market increases the likelihood that the Federal Reserve will cut interest rates to stimulate growth. Lower rates make borrowing cheaper and boost valuations—especially for tech stocks.
🤖 AI’s role in the rally Tech firms, particularly those tied to artificial intelligence like Broadcom and Nvidia, led the charge.
The suggestion is that investors may be viewing job cuts as a sign that AI is ‘working as intended’—streamlining operations and improving margins. Salesforce and Klarna, for instance, have both reportedly cited AI as a reason for major workforce reductions.
The S&P 500 closed at a fresh all-time high of 6,481.40, on 27th August 2025, marking a milestone driven largely by investor enthusiasm around artificial intelligence and anticipation of Nvidia’s earnings report.
This marks the index’s highest closing level ever, surpassing its previous record from 14th August 2025.
Here’s what powered the rally
🧠 AI Momentum: Nvidia, which now commands over 8% of the S&P 500’s weighting, has become a bellwether for AI-driven growth. Despite closing slightly down ahead of its earnings release, expectations for ‘humongous revenue gains’ kept investor sentiment buoyant.
💻 Tech Surge: Software stocks led the charge, with MongoDB soaring 38% after raising its profit forecast.
🏦 Fed Rate Cut Hopes: Comments from New York Fed President John Williams reportedly hinted at a possible rate cut in September, helping ease bond yields and boost equities.
🔋 Sector Strength: Energy stocks rose 1.15%, leading gains across 8 of the 11 S&P sectors.
S&P 500 at all-time record 27th August 2025
Even with Nvidia’s post-bell dip, the broader market seems to be pricing in sustained AI growth and a more dovish Fed stance.
Nvidia forecasts decelerating growth after a two-year AI Boom. A cautious forecast from the world’s most valuable company raises worries that the current rate of investment in AI systems might not be sustainable.
In the early 1970s, President Richard Nixon’s pursuit of re-election collided with the Federal Reserve’s independence, triggering a cascade of economic consequences that reshaped global finance.
The episode remains a cautionary tale about the dangers of politicising monetary policy.
At the heart of the drama was Nixon’s pressure on Fed Chair at the time, Arthur Burns to stimulate the economy ahead of the 1972 election. Oval Office tapes later revealed Nixon’s direct appeals for rate cuts and looser credit conditions—despite rising inflation.
Burns, reluctant but ultimately compliant, oversaw a period of aggressive monetary expansion. Interest rates were held artificially low, and the money supply surged.
Dow historical chart – lowest 43 points to around 45,400
The short-term result was a booming economy and a landslide victory for Nixon. But the longer-term consequences were severe. Inflation, already simmering, began to boil. By 1973, consumer prices were rising at an annual rate of over 6%, and the dollar was under siege in global markets.
Then came the real shock: in August 1971, Nixon unilaterally suspended the dollar’s convertibility into gold, effectively ending the Bretton Woods system.
This move—intended to halt speculative attacks and preserve U.S. gold reserves—unleashed a new era of floating exchange rates and fiat currency. The dollar depreciated sharply, and global markets entered a period of volatility.
By 1974, the consequences were fully visible. The Dow Jones Industrial Average had fallen nearly 45% from its 1973 peak.
Politics vs the Federal Reserve – lesson learned?
Bond yields soared as investors demanded compensation for inflation risk. The U.S. economy entered a deep recession, compounded by the oil embargo and geopolitical tensions.
The Nixon-Burns episode is now widely viewed as a breach of central bank independence. It demonstrated how short-term political gains can lead to long-term economic instability.
The Fed’s credibility was damaged, and it took nearly a decade—culminating in Paul Volcker’s brutal rate hikes of the early 1980s—to restore price stability.
Today, as debates over Fed autonomy resurface, the lessons of the 1970s remain urgent. Markets thrive on trust, transparency, and institutional integrity. When those are compromised, even the most powerful economies can falter.
THE NIXON SHOCK — Early 1970’s Timeline
🔶 August 1971Event: Gold convertibility suspended Market Impact: Dollar begins to weaken Context: Nixon ends Bretton Woods, launching the fiat currency era
🔴 November 1972Event: Nixon re-elected Market Impact: Stocks rally briefly (+6%) Context: Fed policy remains loose under political pressure
🔵 January 1973Event: Dow peaks Market Impact: Start of sharp decline Context: Inflation accelerates, investor confidence erodes
🟢 1974Event: Watergate fallout, Nixon resigns Market Impact: Dow down 44% from 1973 high Context: Recession deepens, Fed credibility damaged.
Current dollar dive, stocks boom and bust (the Dow fell 19% in a year and then by 44% in 1975 from its January 1973 peak). U.S. 10-year Treasury yields surged (peaking at nearly 7.60% -close to twice today’s yield).
In hindsight, Nixon won the election—but lost the economy. And the Fed, caught in the crossfire, paid the price in credibility. It’s a reminder that monetary policy is no place for political theatre.
Is history repeating itself? Is Trump’s involvement different, or another catastrophe waiting to happen?
As Nvidia prepares to unveil another round of blockbuster earnings, Wall Street’s gaze remains firmly fixed on the AI darling’s ascent.
The company has become a proxy for the entire tech sector’s hopes, its valuation ballooning on the back of generative AI hype and data centre demand. Traders, analysts, and even pension funds are treating Nvidia’s quarterly results as a bellwether for market sentiment.
But while the Street pops champagne over GPU margins, a quieter and arguably more consequential drama is unfolding in Washington: The Federal Reserve’s independence is under threat.
Recent political manoeuvres—including calls to fire Fed Governor Lisa Cook and reshape the Board’s composition—have raised alarm bells among economists and institutional investors.
The Fed’s ability to set interest rates free from partisan pressure is a cornerstone of global financial stability. Undermining that autonomy could rattle bond markets, distort inflation expectations, and erode trust in the dollar itself.
Yet, the disparity in attention is striking. Nvidia’s earnings dominate headlines, while the Fed’s institutional integrity is relegated to op-eds and academic panels.
Why? In part, it’s the immediacy of Nvidia’s impact—its share price moves billions in minutes.
The Fed’s erosion, by contrast, is a slow burn, harder to quantify and easier to ignore until it’s too late.
Wall Street may be betting that the Fed will weather the political storm. But if central bank independence falters, even Nvidia’s stellar performance won’t shield markets from the fallout.
The real risk isn’t missing an earnings beat—it’s losing the referee in the game of monetary policy.
In the end, Nvidia may be the star of the show, but the Fed is the stage. And if the stage collapses, the spotlight won’t save anyone.
In a sweeping rally that spanned continents and sectors, major global indices surged to fresh record highs yesterday, buoyed by cooling inflation data,renewed hopes of U.S. central bank rate cuts, and easing trade tensions.
U.S. inflation figures released 12th August 2025 for July came in at: 2.7% – helping to lift markets to new record highs!
U.S. Consumer Price Index — July 2025
Metric
Value
Monthly CPI (seasonally adjusted)
+0.2%
Annual CPI (headline)
+2.7%
Core CPI (excl. food & energy)
+0.3% monthly, +3.1% annual
Despite concerns over Trump’s sweeping tariffs, the U.S. July 2025 CPI came in slightly below expectations (forecast was 2.8% annual).
Economists noted that while tariffs are beginning to show up in certain categories, their broader inflationary impact remains modest — for now.
Global Indices Surged to Record Highs Amid Rate Cut Optimism and Tariff Relief
Tuesday, 12 August 2025 — Taking Stock
📈 S&P 500: Breaks Above 6,400 for First Time
Closing Level: 6,427.02
Gain: +1.1%
Catalyst: Softer-than-expected U.S. CPI data (+2.7% YoY) boosted bets on a September rate cut, with 94% of traders now expecting easing.
Sector Drivers: Large-cap tech stocks led the charge, with Microsoft, Meta, and Nvidia all contributing to the rally.
💻 Nasdaq Composite & Nasdaq 100: Tech Titans Lead the Way
Nasdaq Composite: Closed at a record 21,457.48 (+1.55%)
Nasdaq 100: Hit a new intraday high of 23,849.50, closing at 23,839.20 (+1.33%)
Highlights:
Apple surged 4.2% after announcing a $600 billion U.S. investment plan.
AI optimism continues to fuel gains across the Magnificent Seven stocks.
Nasdaq 100 chart 12th August 2025
Nasdaq 100 chart 12th August 2025
🧠 Tech 100 (US Tech Index): Momentum Builds
Latest High: 23,849.50
Weekly Gain: Nearly +3.7%
Outlook: Traders eye a breakout above 24,000, with institutional buying accelerating. Analysts note a 112% surge in net long positions since late June.
🇯🇵 Nikkei 225: Japan Joins the Record Club
Closing Level: 42,718.17 (+2.2%)
Intraday High: 43,309.62
Drivers:
Relief over U.S. tariff revisions and a 90-day pause on Chinese levies.
Strong earnings from chipmakers like Kioxia and Micron.
Speculation of expanded fiscal stimulus following Japan’s recent election results.
🧮 Market Sentiment Snapshot
Index
Record Level Reached
% Gain Yesterday
Key Driver
S&P 500
6,427.02
+1.1%
CPI data, rate cut bets
Nasdaq Comp.
21,457.48
+1.55%
AI optimism, Apple surge
Nasdaq 100
23,849.50
+1.33%
Tech earnings, institutional buying
Tech 100
23,849.50
+1.06%
Momentum, bullish sentiment
Nikkei 225
43,309.62
+2.2%
Tariff relief, chip rally
📊 Editorial Note: While the rally reflects strong investor confidence, analysts caution that several indices are approaching technical overbought levels.
The Nikkei’s RSI, for instance, has breached 75, often a precursor to short-term pullbacks.
There are increasingly credible signs that U.S. stocks may be heading into a deeper adjustment phase.
Here’s a breakdown of the key indicators and risks that suggest the current stumble could be more than a seasonal wobble. It’s just a hypothesis, but…
S&P 500 clinging to its 200-day moving average: While the long-term trend remains intact, short-term averages (5-day and 20-day) have turned negative.
Volatility Index (VIX) rising: A 7.61% surge in the 20-day average VIX suggests growing unease, even as prices remain elevated.
Diverging ADX readings: The S&P 500’s ADX (trend strength) is weak at 7.57, while the VIX’s ADX is strong at 45.37—classic signs of instability brewing.
🧠 Sentiment & Positioning: Optimism with Defensive Undercurrents
Investor sentiment is bullish (40.3%), but rising put/call ratios and a complacent Fear & Greed Index hint at hidden caution.
Historical parallels: Similar sentiment setups preceded corrections in 2021 and 2009. We’re not at extremes yet, but the complacency is notable.
🌍 Macroeconomic Risks: Tariffs, Fed Policy, and Structural Headwinds
Tariff escalation: Trump’s recent executive order raised effective tariffs to 15–20%, with new duties on rare earths and tech-critical imports.
Labour market weakening: July’s jobs report showed just 73,000 new jobs, with massive downward revisions to prior months. Unemployment ticked up to 4.2%.
Fed indecision: The central bank is split, with no clear path on rate cuts. This uncertainty is amplifying volatility.
Structural drag: Reduced immigration and R&D funding are eroding long-term growth potential.
🛡️ Strategic Implications: How Investors Are Hedging
Defensive sectors like utilities, healthcare, and gold are gaining traction.
VIX futures and Treasury bonds are being used to hedge against volatility.
Emerging markets with trade deals (e.g., Vietnam, Japan) may outperform amid global realignment.
🗓️ Seasonal Weakness: August and September Historically Slump
August is the worst month for the Dow since 1988, and the second worst for the S&P 500 and Nasdaq.
Wolfe Research reportedly notes average declines of 0.3% (August) and 0.7% (September) since 1990.
While the broader market still shows resilience—especially in mega-cap tech—the underlying signals point to fragility.
Elevated valuations, weakening macro data, and geopolitical uncertainty are converging. A deeper correction isn’t guaranteed, but the setup is increasingly asymmetric: limited upside, growing downside risk.
On 30th July 2025, the Federal Reserve opted to keep its benchmark interest rate unchanged at 4.25%–4.50%, defying mounting pressure from President Trump to initiate cuts.
The decision, reached by a 9–2 vote, marked the first time since 1993 that two governors—Michelle Bowman and Christopher Waller—formally dissented, advocating for a quarter-point reduction.
Fed Chair Jerome Powell cited “moderated” economic growth and “somewhat elevated” inflation as reasons for maintaining the current stance.
Despite a robust Q2 GDP reading of 3%, Powell emphasised the need for caution, particularly amid uncertainty surrounding Trump’s tariff policies.
Markets reacted with disappointment, as hopes for a dovish pivot were dashed. Powell remained non-committal about September’s outlook, reportedly stating, ‘We have made no decisions about September’.
With inflation still above target and political tensions rising, the Fed’s wait-and-see approach underscores its commitment to data-driven policy.
U.S. Federal Reserve has kept its benchmark interest rate steady at 4.25% to 4.50% for the fourth consecutive meeting.
This decision reflects a cautious stance amid ongoing uncertainty surrounding President Trump’s tariff policies and their potential impact on inflation and economic growth.
The Fed still anticipates two rate cuts later in 2025, but officials are split – some expect none or just one cut.
Inflation projections have been revised upward to 3.0% for 2025, while economic growth expectations have been trimmed to 1.4%.
U.S. President Donald Trump has been sharply critical of Federal Reserve Chair Jerome Powell, especially following the Fed’s decision on June 18, 2025, to keep interest rates steady.
He’s called Powell ‘a stupid person’, ‘destructive’, and ‘Too Late Powell’. accusing him of being politically motivated and slow to act on rate cuts.
And the Federal Reserve is supposed to act independently of political influence.
In May 2025, U.S. inflation rose by 0.1% from the previous month, bringing the annual inflation rate to 2.4%, slightly below economists’ predictions of 2.5%.
Core U.S. inflation, which excludes food and energy, increased by 0.1% month-on-month, with a year-on-year rate of 2.8%.
The modest rise was largely offset by falling energy prices, particularly a 2.6% drop in petrol, which helped keep overall inflation in check.
Prices for new and used vehicles, as well as apparel, also declined. Meanwhile, food and housing (shelter) costs each rose by 0.3%, with housing (shelter) being the primary contributor to the monthly increase.
Despite President Trump’s sweeping tariffs introduced in April 2025, their inflationary impact has yet to fully materialise. Analysts suggest that many companies are still working through pre-tariff inventories, delaying price hikes for consumers.
However, economists caution that the effects may become more pronounced in the coming months.
The Federal Reserve is expected to hold interest rates steady for now, as U.S. policymakers monitor whether inflation remains contained or begins to accelerate due to trade-related pressures.
Markets responded positively to the data, with stock futures rising and Treasury yields falling.
So, while inflation remains above the Fed’s 2% target, May’s figures suggest a temporary reprieve.
The Federal Reserve held its key interest rate steady at 4.25% – 4.50% on 7th May 2025, citing economic uncertainty and the potential impact of tariffs.
Fed Chair Jerome Powell emphasised that the central bank is in wait-and-see mode, monitoring inflation and employment risks.
The decision follows concerns that Trump’s trade policies could lead to stagflation, with rising prices and slowing growth.
While markets reacted positively, analysts remain divided on whether the Fed will cut rates later this year.
Powell stated that future adjustments will depend on evolving economic conditions and the balance of risks.
Trump’s take on this decision was reportedly to call Powell… a fool.
What is stagflation?
Stagflation is an economic condition where high inflation, stagnant economic growth, and high unemployment occur simultaneously.
It presents a challenge for policymakers because measures to reduce inflation can worsen unemployment, while efforts to boost growth may fuel inflation further.
The U.S. economy is showing cracks as multiple indicators suggest that growth may be slowing.
With GDP shrinking by 0.3% in the first quarter of 2025, concerns about an impending recession have intensified among analysts and investors.
A key driver of this economic downturn is the ongoing trade uncertainty, which has prompted businesses to stock up on imports before new tariffs take effect.
While some experts argue this is a temporary setback, others caution that prolonged trade conflicts could stifle growth for months to come.
Resilient labour market
Despite these concerns, the labour market has remained resilient, with unemployment hovering at 4.2%. However, signs of strain are emerging – job openings have declined, and layoffs have picked up in certain industries.
If hiring slows further, consumer spending could weaken, adding pressure to the economy.
Inflation remains another point of concern. Rising costs of goods and services have strained household budgets, leading to reduced discretionary spending.
The Federal Reserve, which has maintained high interest rates, is carefully assessing whether policy adjustments are needed to prevent a sharper downturn.
On Wall Street, sentiment is divided. Goldman Sachs estimates a 45% probability of a recession, while J P Morgan suggests the likelihood could be as high as 60%.
Some economists believe strategic trade deals and government intervention could avert a full-blown recession, but the margin for error is slim.
Does it really matter if there is to be a recession – it will likely be short lived. It will not please the U.S. President Donald Trump.
While uncertainty clouds the future, one thing is clear – the U.S. economy is at a pivotal moment. Whether policymakers can stabilise growth or if the nation is headed towards a deeper slowdown will depend on the next few quarters and the outcome of Trump’s tariffs.
Tudor Investment Corporation
Paul Tudor Jones, the founder of Tudor Investment Corporation, recently shared his outlook on the U.S. economy, and his perspective isn’t exactly optimistic.
He believes that U.S. stocks are likely to hit new lows before the end of the year, even if President Trump dials back tariffs on Chinese imports.
Jones pointed out that the combination of high tariffs and the Federal Reserve’s reluctance to cut interest rates is putting significant pressure on the stock market.
He reportedly noted that even if Trump reduced tariffs to 50% or 40%, it would still amount to one of the largest tax increases since the 1960s, potentially slowing economic growth.
The billionaire investor also warned that unless the Fed adopts a more dovish stance and aggressively cuts rates, the market is likely to continue its downward trajectory.
He reportedly emphasised that the current economic conditions – marked by trade uncertainty and tight monetary policy – are not favourable for a stock market recovery.
Interestingly, Jones also expressed concerns about artificial intelligence, stating that AI poses an imminent threat to humanity within our lifetime.
President Donald Trump’s recent criticism of Federal Reserve Chair Jerome Powell has sent shockwaves through the financial markets, reigniting concerns about the central bank’s independence.
On Monday 21st April 2025, Trump took to social media to publicly call Powell a ‘major loser’ and demanded immediate interest rate cuts, warning of an economic slowdown if his demands were not met.
This public rebuke, coupled with Trump’s earlier threats to terminate Powell, has unsettled investors and triggered another sharp sell-off in U.S. stocks.
The Dow Jones Industrial Average plunged nearly 1,000 points, or 2.48%, closing at 38170. The S&P 500 and Nasdaq Composite also suffered significant losses, falling 2.36% and 2.55%.
Dow Jones one-year chart
Dow Jones one-year chart
Trump continues to create uncertainty
Analysts attribute this market turmoil to fears that Trump’s rhetoric could undermine the Federal Reserve’s ability to operate independently, a cornerstone of its credibility.
‘Magnificent Seven’ tech companies dragged the major indexes lower, with Tesla and Nvidia respectively losing 5.8% and more than 4%. Amazon shed 3%, and Meta Platforms suffered losses too.
Tesla one-year chart
Tesla one-year chart
Adding to the uncertainty, Trump’s tariff policies have already strained investor confidence. The combination of trade tensions and doubts about the Fed’s autonomy has led to a flight from U.S. assets.
The dollar hit a three-year low, while gold prices soared to record highs above $3,400 per ounce as investors sought safe-haven assets.
Market experts warn that prolonged uncertainty could have far-reaching implications. ‘The market is okay with rates coming down,’ reportedly said Thierry Wizman, a global currency strategist. ‘What the market is not okay with is having the president or politicians tell the Fed that the rates need to come down’.
As Trump’s public rebuttal of Powell continues, investors observe the potential implications. The stakes are high, not just for the U.S. economy but for global markets that rely on the stability of American financial institutions.
Investors are left grappling with a volatile landscape, where political pressures and economic policies collide.
The Federal Reserve has opted to maintain its federal funds rate within the range of 4.25% to 4.5%, a decision that aligned with market expectations
This comes amidst increasing uncertainty surrounding the economic landscape. While the Fed’s current stance is to hold interest rates steady, it has reiterated its intention to implement two rate cuts later this year – a prospect that has garnered significant attention and appreciation from investors.
Fed Chair Jerome Powell reportedly expressed measured optimism about the state of the U.S. economy during his press conference.
He highlighted the strength of labour markets, and the progress made toward reducing inflation, which, although still above the 2% target, has shown improvement.
Powell also addressed potential short-term impacts of tariffs but downplayed their long-term influence on inflation.
Financial markets responded positively to the announcement, with major stock indices such as the Dow, S&P 500, and Nasdaq rallying after the recent slump.
This reflects investor confidence in the Fed’s ability to navigate economic challenges while supporting growth. However, economists warn of potential risks, including stagflation, as uncertainties tied to Trump’s tariffs and consumer spending persist.
The decision underscores the Fed’s balancing act between fostering economic stability and addressing inflationary pressures, leaving room for cautious optimism as the year unfolds.
The Federal Reserve maintained its key interest rate on Wednesday 29th January 2025, reversing a recent trend of policy easing as it assesses the likely turbulent political and economic landscape ahead.
The decision followed three consecutive cuts since 2024 and marked the first Federal Reserve meeting since frequent Fed critic Donald Trump assumed the presidency last week. He almost immediately expressed his intention for the central bank to cut rates.
The post-meeting statement scattered a few clues about the reasoning behind the decision to hold rates steady. It offered a more optimistic view on the U.S. labour market while losing a key and telling reference from the December 2024 statement that inflation ‘has made progress toward’ the Fed’s 2% inflation goal.
Statement
Text appearing for the first time in the new statement is in red and underlined. Black text appears in both statements.
Text appearing for the first time in the new statement is in red and underlined. Black text appears in both statements.
The decision comes against a volatile political backdrop.
In just over a week, Trump has disrupted Washington’s policy and norms by signing hundreds of orders aimed at implementing an aggressive agenda.
The U.S. president has endorsed tariffs instruments of economic and foreign policy, authorised a wave of deportations for those crossing the border illegally, and a series of deregulatory initiatives.
Trump spoke of his confidence that he will bring down inflation and said he would ‘demand’ that interest rate be lowered ‘immediately.’
Although the president lacks authority over Fed beyond nominating board members, Trump’s statement indicated a potentially contentious relationship with policymakers, similar to his first term.
Inflation has moved down sharply from the 40-year peak it hit in mid-2022, but the Fed’s 2% goal has remained elusive.
In fact, the central bank’s preferred pricing gauge showed headline inflation ticked higher to 2.4% in November, the highest since July, while the core measure excluding food and energy held at 2.8%.
The PCE price index, the Fed’s preferred inflation gauge, showed an increase of just 0.1% from October and a 2.4% annual rate – which was below expectations.
Excluding food and energy, core PCE also increased 0.1% monthly and was 2.8% higher from a year ago, with both readings being 0.1% off the forecast.
The reading indicated a 2.4% inflation rate on an annual basis, still ahead of the Fed’s 2% goal, but lower than the 2.5% consensus estimate.
The markets cheered the inflation report and recovered loses after yesterdays (19th December 2024) FOMC meeting where the Fed announced it may only reduce interest rates on two more occasions in 2025 – even after a 0.25% rate reduction.
The Fed indicated that it probably would only lower twice more in 2025, according to the closely watched ‘dot plot’ matrix of individual members’ future rate expectations
While the decision itself was closely watched, the primary concern centered on what they would communicate regarding its future direction, considering inflation remains above and economic growth is relatively – conditions that do not typically align with easing.
The Fed said that it would probably only lower the interest rate twice in 2025. The markets reacted with a sharp pullback with the Dow hitting a 10-day losing streak – last seen in 1974.
On Tuesday 17th December 2024, the Dow Jones Industrial Average lost 0.61%, completing a nine-day losing streak.
The Dow Jones Industrial Average has recently experienced its longest losing streak since the 1970’s – 1978 to be precise.
The index has suffered nine consecutive days of declines. This downward trend began on 4th December, when the index closed above 45,000 for the first time, only to drop over 1,500 points since then.
However, it’s not a major fall for the 30-stock index, despite the concerning numbers – it has been a slow burn and not a ‘massive’ correction. It represents a little under around a 3.5% pullback.
Several factors contribute to this decline. Investors are bracing for the Federal Reserve’s final interest rate decision of the year, expectations of a 0.25% cut. However, stronger-than-expected retail sales in November have introduced uncertainty about the Fed’s future monetary policy. Additionally, concerns about the potential impacts of-E Donald Trump’s tariff plans have added to volatility.
Despite the Dow’s losses, the broader S&P 500 and Nasdaq Composite indices have demonstrated resilience, with the latter even achieving record highs. This divergence underscores the mixed sentiment among investors, with some rotating out of high-growth stocks like Nvidia and into other tech sectors.
Market analysts suggest that the Dow’s ‘adjustment’ may be a healthy pause, offering an opportunity for stocks to consolidate before potentially resuming their upward trajectory. Investors ought to remain vigilant, closely monitoring market trends and individual stock performance to navigate this dynamic environment effectively
The heaviest drag on the Dow is UnitedHealth, which has contributed to more than half of the index’s decline over this period.
Some of this money has likely rotated to crypto with Bitcoin notably blasting through the $100,000 mark to touch $107,000 in recent trading.
U.S. consumer prices rose at a faster annual pace in November 2024, a reminder that inflation remains an issue both for households and policymakers.
The consumer price index (CPI) showed a 12-month inflation rate of 2.7% after increasing 0.3% on the month, the Bureau of Labor Statistics reported Wednesday 11th November 2024. The annual rate was 0.1 percentage point higher than October 2024.
Excluding food and energy costs, the core CPI was at 3.3% on an annual basis and 0.3% monthly. The 12-month core number was unchanged from a month ago.
All of the numbers were in line with consensus estimates.
The data comes with Federal Reserve deciding over what to do at their policy meeting next week. Markets strongly expect the Fed to lower its benchmark short-term borrowing rate by 0.25% at the meeting on 18th December 2024.
It is unlikely now that a January rate cut will happen as the FOMC measures the impact recent cuts have had on the economy.
Odds are of a 99% certainty of a cut in December 2024.
More new records set in extended U.S. post-election rally
The S&P 500 and Nasdaq climbed on Thursday 7th November 2024, extending the rally following the victory of President-elect Donald Trump, while traders considered the implications of the Federal Reserve’s recent rate reduction.
The S&P 500 rose to close at an all-time high of 5,973.10, while the Nasdaq Composite increased by to end at 19,269.46, marking its first finish above 19,000.
The Dow Jones Industrial Average remained virtually unchanged, dipping slightly by less than one point to 43,729.34. During the trading session, all three indices reached new intraday highs.
Following President Trump’s electoral victory, the stock market experienced a significant rally on Wednesday 6th November 2024, with the Dow soaring by 1,500 points. The S&P 500 surged recording its best post-election day performance ever.
Post-election, the bond market has seen considerable fluctuations, with Treasury yields declining on Thursday after a sharp increase the previous day.
The Federal Open Market Committee (FOMC) has reduced its benchmark overnight borrowing rate by 0.25%, bringing it to a target range of 4.50%-4.75%.
This move follows September’s significant 0.5% cut. The overnight borrowing rate, while primarily affecting interbank lending rates, also typically impacts consumer debt products including mortgages, credit cards, auto and other loans.
Inflation saw a modest rise in September 2024, edging closer to the Federal Reserve’s target, as reported by the Commerce Department on Thursday 31st October 2024.
The personal consumption expenditures (PCE) price index recorded a seasonally adjusted increase of 0.2% for the month, and the year-over-year inflation rate stood at 2.1%, aligning with predictions. The PCE index is the Fed’s preferred inflation measure, although officials monitor various other indicators as well.
The Fed aims for a 2% yearly inflation rate, a benchmark not met since February 2021.
Despite the main figure indicating that the central bank is approaching its objective, the inflation rate, excluding food and energy, was at 2.7%. This core inflation metric rose by 0.3% monthly, with the annual rate exceeding expectations by 0.1 percentage points.
This report arrives as markets strongly anticipate the Fed will reduce its benchmark short-term interest rate at the upcoming meeting. In September 2024, the Fed made a significant half-percentage-point rate cut, a rare action during an economic upturn.
Officials remain optimistic that inflation will realign with their target, yet they are wary about the labour market’s condition, even as most data suggests steady hiring and low layoff rates.
On Wednesday 23rd October 2024, the U.S. 10-year Treasury yield climbed again as traders considered recent remarks from Federal Reserve officials regarding the direction of interest rate reductions
The U.S. 10-year Treasury yield increased by over 0.030% to approximately 4.24%. The benchmark rate peaked at 4.26% during the session, its highest since July 2024. This surge followed a 12-basis point leap on Monday 21st and a rise above 4.2% on Tuesday 22nd.
The U.S. 2-year Treasury yield also rose, reaching 4.06%, up by roughly 0.030%. Earlier in the day, it achieved a high of 4.072%.
Yields and equity prices have an inverse relationship. A single basis point is equivalent to 0.01%
Elevated Treasury yields are exerting pressure on the equity market, causing U.S. stock futures to drop. This downturn follows the S&P 500‘s first consecutive loss since the beginning of September.
Despite a half-point reduction by the Federal Reserve in September 2024, strong economic indicators and concerns about the deficit have contributed to the increase in the 10-year Treasury yield.
Traders are worried that the central bank might be reluctant to lower rates further, even though the Fed predicted additional cuts amounting to half a point by the end of the year.
Recent inflation data suggests that the Federal Reserve is fast approaching its goal, if not already there – following the central bank’s significant interest rate reduction of 0.50% a few weeks ago
Both consumer and producer price indexes for September 2024 aligned with forecasts, indicating a decline in inflation towards the central bank’s 2% target.
Economists believe the Fed may have already achieved that target.
Last Friday, it was predicted that the personal consumption expenditures (PCE) price index for September 2024 would reveal an annual inflation rate of 2.04% upon its release later in the month.
Should economists’ estimates prove accurate, the figure would be rounded to 2%, aligning precisely with the Fed’s longstanding goal, marking a significant shift from the 40-year inflation peak over two years ago, which led to a series of substantial interest rate hikes.
The Fed favours the PCE as its measure of inflation, although it considers various factors in its decision-making process.
Inflation has significantly decreased over the past 18 months, and the job market has settled at a level that may represent full employment.
The U.S. economy several obstacles in reaching and sustaining the 2% inflation target
Supply chain disruptions
Persistent supply chain problems can escalate the costs of goods and services, potentially increasing inflation.
Labour market tightness
A constrained labour market may result in rising wages, which companies typically offset by raising prices for consumers.
Global economic factors
International events, like geopolitical conflicts or other countries’ economic statuses, can influence inflation via alterations in trade and commodity costs.
Consumer expectations
Anticipations of higher inflation might prompt consumers to increase spending now, which can elevate prices and lead to a self-fulfilling prophecy.
Monetary policy timing
The economy takes time to respond to monetary policy adjustments, leading to a lag between policy implementation and its effects on inflation.
These elements pose difficulties for the Federal Reserve in precisely managing inflation to meet its goal.
While managing inflation is challenging, recent data suggests that although prices haven’t fallen from their peak levels of a few years ago, the rate of increase is slowing down.
The 12-month consumer price index for all items stood at 2.4% in September, while the producer price index, indicative of wholesale inflation and a precursor to pipeline pressures, was at an annual rate of 1.8%.
Federal Reserve Chair Jerome Powell recently stated that the latest half-percent reduction in interest rates should not be interpreted as a sign that future measures will be equally as aggressive.
The Fed suggests that subsequent adjustments will likely be more ‘modest’.
In his address, the central bank’s chief highlighted their goal to balance curbing inflation with maintaining a robust labour market, basing future decisions on data insights.
‘Moving forward, should the economy evolve as widely expected, our policy stance will progressively adjust towards neutrality. Yet, we are not bound to a fixed course,‘ he clarified during in his statement. ‘Risks are two-way, and our resolutions will be determined one meeting at a time.‘
The Federal Reserve believe, as noted in a recent update, that they are just millimetres away from that ‘elusive’ economic soft landing.
The Federal Open Market Committee (FOMC) has voted to reduce the interest rate by 0.50% after having maintained its benchmark rate within the range of 5.25% to 5.50% since July 2023
The previous rate was the highest seen for 23 years and remained unchanged even though the Fed’s favoured inflation gauge has decreased from 3.3% to 2.5%, and the unemployment rate has climbed from 3.5% to 4.2% during this period.
Following the interest rate cut today, 18th September 2024 of 0.50%, the new rate now stands at 4.75% to 5.0%.
