The U.S. Federal Reserve is expected to cut interest rates for the first time since March 2020. This move could have a significant impact on the stock market. Inflation has been cooling down recently.
Current Market expectations for Fed Rate Cuts…
-Sep 18, 2024: 25 bps cut to 5.00-5.25%
-Nov 7, 2024: 25 bps cut to 4.75-5.00%
-Dec 18, 2024: 50 bps cut to 4.25-4.50%
-Jan 25, 2025: 25 bps cut to 4.00-4.25%
-Mar 19, 2025: 25 bps cut to 3.75-4.00%https://t.co/l5IYmkeySJ pic.twitter.com/EnbM8dbb6v— Charlie Bilello (@charliebilello) August 16, 2024
The consumer price index (CPI) ended 2023 at 4.1% and had an annualized rate of 3% in June 2024. This is getting closer to the Fed’s 2% target. According to the FedWatch tool, the Fed is likely to cut rates three times by the end of 2024.
FED'S GOOSLBEE: I HAVE CONCERNS THAT WE SET THIS LEVEL OF INTEREST RATE MORE THAN A YEAR AGO, AND INFLATION, AND LABOR MARKET COOLING FASTER THAN EXPECTED
— *Walter Bloomberg (@DeItaone) August 16, 2024
The cuts are expected in September, November, and December. Historically, falling interest rates have not always been good for the stock market.
After reading an article posted by @KitcoNewsNOW Thursday, I thought it time to update my thoughts on an expected FOMC rate cut in September with a new piece for @Barchart: https://t.co/RnZjg0zstN
— Darin Newsom (@DarinNewsom) August 16, 2024
During the early 2000s dot-com tech bubble and the late 2000s global financial crisis, rate cuts were followed by declines in the S&P 500.
There are no clear signs of an impending crisis or recession for the U.S. economy right now. However, there are some signs of weakness. The unemployment rate has risen to 4.3% from 3.7% in January.
🌎 🇺🇸 🇪🇺 #Weekahead | #Fed Chair Powell Steps Into the Spotlight at Jackson Hole – Bloomberg#ECB and Fed publish minutes ahead of expected September cutshttps://t.co/KjMQU3sC7V pic.twitter.com/9xNOwfWsS3
— Christophe Barraud🛢🐳 (@C_Barraud) August 18, 2024
Fed anticipates September rate cut
A softening job market can lead to weak consumer spending. The CPI is almost back to the Fed’s target.
Maintaining a restrictive policy stance might be inappropriate. Rate cuts at the end of this year might not show up in economic data until sometime in 2025. The sooner the Fed starts cutting rates, the better the chances that the U.S. economy will avoid unnecessary deterioration.
Corporate earnings drive the stock market. It is hard for companies to deliver growth in a slowing economy. If Wall Street starts to reduce earnings forecasts, it could lead to a downturn in stocks.
In this case, the S&P 500 could fall while the Fed is cutting rates at the same time. Rate cuts generally indicate economic weakness. But over the long term, they might offer a buying opportunity if stocks decline temporarily.
As the Fed considers possible rate cuts, the future of both the economy and stock market is uncertain.
