Tag: Federal Reserve

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U.S. holds interest rates steady – Trump isn’t happy!

U.S. Interest Rate

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.

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U.S. inflation up 0.1% in May – but less than expected

U.S. inflation

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 summer could yet tell a different story.

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U.S. Federal Reserve holds interest rates at 4.25% – 4.50% and upsets Trump in the process

Tariffs and the U.S. economy?

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.

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Signs of weakness in the U.S. economy – is a recession coming and is the United States causing harm to global economies?

Cracking world economies

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.

Maybe AI will start running hedge funds too…?

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U.S. stocks slide again as Trump publicly criticises Fed Chair Powell

Jerome Powell criticised

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 Trump ‘turmoil’ continues.

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U.S. holds interest rate steady despite Trumps tariff threats – transitory inflation is back – remember that?

U.S. Interest rate

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.

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Fed holds rates steady – calculates a less confident view on inflation

Federal Reserve

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.

As expected, the Federal Open Market Committee (FOMC) left its borrowing rate unchanged in a range between 4.25% and 4.50%.

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%.

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U.S. inflation reading of 2.4% for November 2024 is better than expected

Inflation PCE

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 personal consumption expenditures price index (PCE) – the Fed’s preferred inflation gauge, showed an increase of just 0.1% from October 2024.

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.

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Fed cuts interest rate by 0.25% – indicates fewer cuts in 2025

U.S. interest rate

The Federal Open Market Committee (FOMC) cut its borrowing rate to a range of 4.25% – 4.50%, mirroring its December 2022 level.

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.

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Dow down in the doldrums after nine day losing streak

Dow Jones

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.

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U.S. annual inflation rate increases to 2.7% in November 2024 – as expected

Inflation U.S.

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.

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S&P 500 and Nasdaq close at new records again as Fed cuts rates

U.S> stocks up

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.

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U.S. inflation rate hits 2.1% in September 2024

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.

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10-year Treasury yield at 4.25% – highest since July 2024

Treasury yields U.S.

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.

The jury is out.

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Is it job done for the Federal Reserve now?

Federal Reserve

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%.

The 0.50% cut in September 2024to a federal funds rate range of 4.75% to 5% was extraordinary for a growing economy, and it is anticipated that the Federal Reserve will revert to its standard quarter-point adjustment.

Excessive monetary loosening could trigger a surge in consumer demand just as it begins to reach a manageable rate.

Could we witness deflation if the 2% target is overshot?

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The Fed says smaller rate cuts not bigger to come

Federal Reserve

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.

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U.S. cuts interest rate aggressively by 0.50% bringing the Fed rate range to 4.75% – 5.0%

U.S. interest rate

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%.

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In August 2024 – U.S. consumer prices increased by 0.2% with core inflation exceeding expectations

U.S. CPI statistics

As anticipated in the U.S., prices rose in August 2024, while the annual inflation rate fell to its lowest point since February 2021, according to a Labor Department report on Wednesday 11th September 2024.

This development likely now paves the way for a Federal Reserve interest rate reduction next week but maybe by only 0.25% and not the 0.50% some pundits have predicted.

The consumer price index, which measures a wide array of goods and services costs throughout the U.S. economy, rose by 0.2% for the month, matching the consensus, as reported by the Bureau of Labor Statistics.

This increase brought the year-on-year inflation rate to 2.5%, a decrease of 0.4 percentage points from July 2024 and slightly below the 2.6% prediction.

Nevertheless, the core CPI, which omits the more fluctuating food and energy prices, saw a 0.3% rise for the month, just above the 0.2% projection. The annual core inflation rate stood at 3.2%, consistent with expectations.

Data: U.S. Bureau of Labor Statistics
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Is the ‘eagerly anticipated’ Fed interest rate cut (due in September 2024) – too little too late?

Federal Reserve

Is the U.S. economy already weaker than the headline data suggests and should the U.S. Federal Reserve already be easing?

In the U.S. recent data (Friday 30th August 2024) showed the personal consumption expenditures (PCE) price index, the Federal Reserve’s favored measure of inflation, ticked up 0.2% last month, as expected. The data seems to back a smaller rate cut.

The question of whether the economy is weaker than headline data suggests and if the U.S. Federal Reserve should already be easing is complex.

The gross domestic product (GDP) increased at an annual rate of 3% in Q2 of 2024, which is a positive indicator. However, the U.S. current-account deficit widened, and personal income and outlays show mixed signals with a slight increase in personal income but a higher increase in personal outlays.

Inflation remains above the Federal Reserve’s 2% target but well below the pandemic-era peak. These factors suggest that while there are positive aspects to the U.S. economy, there are also challenges that may warrant caution from the Federal Reserve.

Is the market too focused on forecasting the size of any possible upcoming cut? “The question no one has asked yet is why is the policy rate is still at 5.5% when inflation is down to almost 2.5%? It would most likely be an error to do a ‘bigger’ rate cut in this kind of environment with all the uncertainty that the U.S. economy is facing.

Jobs data trends are also an important factor and play a major role in decision making. Company performance and future performance predictions are critical to help judge policy direction.

Decisions on monetary policy easing would be based on a comprehensive analysis of all economic indicators and trends.

If the FED go BIG on a rate cut some say it could be very dangerous and spook the markets.

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Dow Jones hits new record high

The Dow Jones Industrial Average (DJIA) reached a new record high on Monday 26th August 2024, closing at 41240. 

Investors have responded positively to the Federal Reserve’s recent indications that interest rate cuts are highly probable to commence in September 2024.

Market dynamics and sentiment

The rise of the DJIA was propelled by advances in sectors like materials, utilities, and energy. Conversely, the broader market exhibited mixed outcomes. The S&P 500 declined by 0.3%, and the Nasdaq Composite dropped by 0.8%, contrasting with the Dow’s notable performance. This disparity is largely due to the lagging of technology stocks, especially with significant drops in firms such as Nvidia and Tesla.

Federal Reserve

Federal Reserve Chair Jerome Powell’s recent address at the Jackson Hole Economic Symposium was pivotal in bolstering investor confidence. Powell’s remarks indicated that the Fed is ready to cut interest rates, which many investors believe will foster economic growth and stabilise the markets. The expectation of rate cuts has played a significant role in the recent market rally, with predictions of potential reductions up to 1% by the end of 2024.

Dow Jones one day chart at record high

Dow Jones 1 day chart

Despite varied performances across sectors, the Dow reaching a new high signals a wider optimism in the market. As the year unfolds, the dynamics among Federal Reserve policies, corporate earnings, and economic indicators will continue to influence market directions.

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All roads lead to Fed rate cut as minutes point to ‘likely’ September 2024 reduction

Fed prediction

No surprise here then as the Fed have been signalling a cut for some time now

The Fed summary stated: “The vast majority” of participants at the July 30-31 meeting “observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting.”

Markets have fully factored in a rate cut for September, marking the first such move since the initial emergency reductions during the early stages of the Covid crisis.

See more about Fed rate cut signals here

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U.S. inflation slows in July 2024

U.S. inflation

U.S. consumer prices (CPI) increased at the slowest rate in over three years last month, further supporting the argument for the Fed to begin reducing interest rates.

According to the U.S. Labor Department, prices climbed 2.9% in the 12 months leading up to July 2024, marking the smallest yearly rise since March 2021 and a decrease from 3% in June 2024.

The monthly inflation report was under intense scrutiny following indications of weaker-than-anticipated job growth in July, which earlier this month led to upheaval in the stock market and concerns about a recession.

Analysts have suggested that these figures should persuade the Federal Reserve that the elevated borrowing costs are effectively bringing inflation back to its target levels, despite the recent increases in housing and food prices.

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Is the Fed fighting its own shadow?

Shadow boxing

Has the Fed over-cooked it this time by waiting too long to reduce interest rates?

U.S. stock markets threw a wobbly after the latest employment data and after the Fed delayed its first rate cut… again. September 2024 now looks likely for that first cut – but by how much: 0.25% or as high as 0.50%?

The latest batch of bad news for the U.S. economy has actually became bad news for stocks this time. For too long the ‘bad news’ has been taken as ‘good news’, especially regarding the likelihood of a Fed interest rate cut – and for the markets in general.

The Federal Reserve (Fed) is grappling with several challenges, including inflation, interest rates, and the broader U.S. and global economies.

Inflation

The Fed has been trying to control high inflation rates, which have been a significant concern. To combat inflation, the Fed has raised interest rates multiple times. Higher interest rates can help reduce inflation by slowing down borrowing and spending, but they can also slow economic growth.

Interest rates

By increasing interest rates, the Fed aims to make borrowing more expensive, which can help cool down an overheated economy. However, this can also lead to higher costs for consumers and businesses, potentially leading to reduced investment and spending.

Economic growth

The Fed’s policies are a balancing act. While they aim to control inflation, they also need to ensure that the economy doesn’t slow down too much. This balancing act can be challenging, especially when external factors like global economic conditions and geopolitical events come into play.

In essence, the Fed’s efforts to manage these issues can sometimes feel like ‘fighting its own shadow,’ as the consequences of their actions can create new challenges.

The timing of interest rate adjustments by the Federal Reserve is a topic of much debate among economists and policymakers.

Inflation control

The Fed’s primary goal in raising interest rates has been to control inflation. If inflation remains high, the Fed might be cautious about reducing rates too quickly to avoid a resurgence of inflation.

Economic indicators

The Fed closely monitors various economic indicators, such as employment rates, consumer spending, and GDP growth. If these indicators suggest that the economy is still strong, the Fed might delay reducing rates to ensure that inflation is fully under control.

Market reactions

Rapid changes in interest rates can cause volatility in financial markets. The Fed often aims for a gradual approach to avoid sudden shocks to the economy.

Global factors

The Fed also considers global economic conditions. For example, if other major economies are experiencing slow growth or financial instability, the Fed might be more cautious in adjusting rates.

Ultimately, the decision to reduce interest rates involves balancing the need to support economic growth with the risk of reigniting inflation. It’s a complex decision with significant implications for the U.S. and global economies.

Looks like the Fed overcooked it this time – but by how much?

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Markets got to hear exactly what they wanted to hear from Fed chair Jerome Powell

FOMC

FOMC hold rates steady at 5.25% – 5.50%

Federal Reserve Chair Jerome Powell ended a press conference in which he gave markets exactly what they wanted; a strong indication of a September 2024 rate cut.

Powell says September 2024 rate cut ‘on the table’ if inflation continues to cool.

Federal Reserve officials held short-term interest rates steady but observed that inflation is getting closer to its 2% target.

The FOMC did not signal an immediate rate cut; they reiterated that further progress is necessary before considering rate reductions. However, Federal Reserve Chair Powell’s subsequent statement was markedly dovish, hinting at a potential rate cut in September 2024.

Markets were generally happy with the news after moving up all day in anticipation of the confirmation of a September cut. The Dow Jones, Nasdaq, Russell 2000 and S&P 500 all climbed before and after the news.

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Gold gains again to hit new record high!

Gold price

Gold prices climbed to $2,482 per ounce, hitting an all-time high. 

Gold prices continued to peak at new record highs Tuesday and Wednesday 15th and 16th July 2024.

On Monday 15th July 2024, Powell reportedly said the Fed won’t wait for inflation to reach the central bank’s 2% target before it begins cutting, due to the ‘lag’ in policy effects. He reportedly said the Fed is looking for ‘greater confidence’ that inflation will return to the 2% level. The monthly inflation rate dipped in June 2024 – the first time in over four years.

The price increase has been aided by encouraging comments from the Federal Reserve that it will now more likely cut interest rates in September 2024 following comments from Fed Chair Jerome Powell.

And that has given market investors and traders more confidence. According to the CME FedWatch tool, traders are convinced the FOMC will cut rates by September 2024.

As interest rates fall, gold usually becomes more appealing compared to fixed-income assets such as bonds and general savings accounts.

One year gold chart to 17th July 2024 (am)