September is in play for Fed cut, says Paul McCulley
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Yahoo
26 minutes ago
- Yahoo
Fed's Mary Daly Signals Imminent Rate Cuts to Protect Employment
San Francisco Fed president Mary Daly says a Fed rate cut is getting FOMC held rates at 4.25%4.50% last week, a level maintained since May, according to Reuters. Daly noted that every meeting is now live for policy adjustments, hinting that the current median projection of two 25 bp cuts this cycle remains appropriate. She emphasized her open mind ahead of a Sept 1617 gathering, pointing to upcoming data including another jobs report, two CPI releases and a PCE price index before then. While Daly didn't call last Friday's nonfarm payrolls of 187,000 workers in July dangerously weak, she said it adds to evidence after evidence that the labor market is softening from last year's pace. She cautioned that if inflation rebounds, policymakers may dial back to fewer cuts, but if weakness continues, they might need more than two 25 bp cuts. A sooner cut could drive bond yields lower and buoy equities sensitive to financing costs. Investors will eye the Sept 1617 FOMC meeting for confirmation on rate-cut timing. This article first appeared on GuruFocus. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
CNBC
26 minutes ago
- CNBC
Euro hits fresh highs on peace talks in Ukraine, BoE in focus
The euro hit a fresh 1½-week high against a weakening dollar on Thursday as investors monitored Ukraine peace talks and shifted their focus to the Bank of England's policy meeting later in the session. The U.S. dollar remained under pressure amid growing concerns over partisanship creeping into key U.S. institutions. Initial U.S. jobless claims, due later in the session, will be closely watched following last week's disappointing nonfarm payrolls report, which triggered a dovish repricing of the Federal Reserve easing path and a slide in the greenback. The euro rose 0.14% to $1.1677, its highest level since July 28, with a possible peace deal in Ukraine seen as a positive driver for the single currency. Ukrainian President Volodymyr Zelenskiy said he planned contacts with Germany, France and Italy on Thursday to discuss progress toward peace. "Sectors to benefit (from a peace deal) should be European consumers, growth-sensitive and construction-related sectors," said Mohit Kumar, economist at Jefferies. "It should also be positive for Eastern Europe as most of the reconstruction efforts would likely flow through Eastern European economies." Sterling was steady ahead of a BoE policy announcement, with markets widely expecting another rate cut. Markets will watch the expected three-way voting split for any signal that the central bank might change its guidance on a "gradual and careful" easing path. "We suspect conviction levels are low in the supposed consensus view that rates can only go down and pressure affected currencies," said Geoff Yu, strategist at BNY, after warning that markets may be too complacent about stagflation risks. "The Bank of England will kick off what we expect to be a new run of cuts through August and September in Europe, but over-committing to easing risks policy error and prolonging stagflation," he added. The Swiss franc rose 0.20% to 0.8047 versus the dollar , even as Swiss President Karin Keller-Sutter returned from Washington empty-handed after a trip aimed at averting a crippling 39% tariff on the country's exports to the U.S. "While we still believe that a deal will ultimately be reached, it is likely to be far more expensive than Switzerland had hoped," said Michael Pfister, strategist at Commerzbank. Last week, U.S. President Donald Trump fired the official responsible for the labour data he did not like, and focus is centring on his nomination to fill a coming vacancy on the Fed's Board of Governors and candidates for the next chair of the central bank. The dollar index, which measures the greenback against a basket of major peers, dropped to a fresh 1-1/2-week low at 98.00, down 0.20% on the day. Fed funds futures are now pricing in a 94% probability of a 25 basis point cut at the Fed's September meeting, up from 48% a week ago, according to the CME Group's FedWatch Tool. In total, traders see 60.5 basis points in cuts this year. The president said on Tuesday he would decide on a nominee to replace outgoing Fed Governor Adriana Kugler by the end of the week and had separately narrowed the possible replacements for Fed Chair Jerome Powell to a short list of four. China's yuan firmed slightly, supported by a stronger official midpoint and upbeat Chinese trade data.
Yahoo
38 minutes ago
- Yahoo
Interest Rates Are About to Do Something They Haven't Done Since December 2024, and It Could Foreshadow a Surprising Move in the Stock Market
Key Points The Federal Reserve cut interest rates three times between September and December last year, but it hasn't made a move in 2025 just yet. Inflation is hovering near the Fed's target and the jobs market is deteriorating, so Wall Street thinks rate cuts will resume in September. Lower interest rates can be good for the stock market, but there could be some short-term volatility as recession fears loom. These 10 stocks could mint the next wave of millionaires › The U.S. Federal Reserve lowered the federal funds rate (overnight interest rate) three times between September and December last year, reversing some of its aggressive hikes from 2022 and 2023. The rate cuts were justified because inflation -- as measured by the Consumer Price Index (CPI) -- cooled from its 2022 levels, when it hit a 40-year high of 8%. The Fed has held interest rates steady this year, but with the CPI now a stone's-throw away from its annualized target of 2%, and the jobs market showing signs of weakness, Wall Street is betting that another cut is on the way in September. Although lower interest rates are typically good for the stock market, history suggests they could trigger some short-term volatility. Here's what it means for the benchmark S&P 500 (SNPINDEX: ^GSPC) index. Interest rate cuts could resume in September The inflation surge in 2022 was driven by a combination of factors stemming from the pandemic. The U.S. government injected trillions of dollars into the economy during 2020 and 2021 to offset the negative effects of lockdowns and social restrictions. At the very same time, the Fed slashed the federal funds rate down to a historic low of 0.13%. The central bank also launched a multi-trillion-dollar quantitative easing (QE) program to support the financial system. To top things off, everyday products were in short supply as factories closed all over the world to stop the spread of the virus, which sent prices surging. The Fed started raising the federal funds rate in March 2022, and it reached a two-decade high of 5.33% at the time of the last hike in August 2023. The central bank hoped this policy shift would bring inflation down by reducing economic activity, and it seems to have worked. The CPI increased by 4.1% in 2023 and then by 2.9% in 2024, so it was clearly trending toward the Fed's 2% target. That's why the central bank felt confident in cutting interest rates three times between September and December last year, bringing the federal funds rate down to 4.33%. But with the CPI now at an annualized rate of 2.7%, the CME Group's FedWatch tool suggests that there could be additional rate cuts in September, October, and December this year. In fact, FedWatch suggests that Wall Street is pricing in an 81.5% chance of a cut in September, up from a 64% chance just one month ago. What changed? On Aug. 1, the Bureau of Labor Statistics (BLS) released its monthly non-farm payrolls report, showing that the U.S. economy added just 73,000 jobs during the month of July. It was much lower than the 110,000 jobs economists were expecting, and to make matters worse, the BLS revised the May and June numbers down by a combined 258,000 jobs. In other words, the U.S. economy might be performing far worse than most Wall Street analysts and economists thought, hence the growing calls for lower interest rates. Interest rate cuts often send jitters through the stock market Conventional wisdom suggests lower interest rates are good for the stock market. They allow companies to borrow more money to fuel their growth, and smaller interest payments can boost their profits. Moreover, declining interest rates reduce the yield on risk-free assets like cash and Treasury bonds, pushing investors into growth assets like stocks. All of these things are tailwinds for the S&P 500. However, a rapid decline in interest rates can also make investors nervous, because it would be a sign of weakness in the economy. Businesses might halt capital investments in that scenario, especially if they see cracks in consumer spending. That would be bad news for corporate earnings and potentially send the stock market lower. In fact, every time the Fed cut interest rates sharply over the last 25 years, a correction in the S&P 500 followed. There were unique circumstances surrounding each of the above easing cycles from the Fed. The dot-com internet bubble burst in 2000, followed by the global financial crisis in 2008, and then the pandemic in 2020, so interest rate cuts didn't cause the stock market declines. However, it's clear that many investors will temporarily exit the market in the face of economic uncertainty, even with interest rates coming down. Look out for more economic weakness Economic crashes are difficult to predict, and so are garden variety recessions. But economists at JPMorgan Chase recently said a decline in labor demand of the magnitude we saw in the July jobs report on Aug. 1 -- along with the revisions for May and June -- is a recession warning signal. Economist Mark Zandi from Moody's Analytics is even more concerned, saying outright that the U.S. economy is on the precipice of a recession following last week's employment report. He also points to flat consumer spending, and declines in construction and manufacturing spending, to support his view. If those experts are right, then the Fed is likely to continue cutting interest rates in September. If the economic weakness flows through to corporate earnings, then we could see a sharp correction in the S&P 500 at the very same time. I'm not suggesting investors should sell stocks right now. The index enters a bear market (a decline of 20% or more) once every six years, on average, so volatility is a normal part of the investing journey. History proves that the S&P always recovers to set new highs given enough time. So any weakness will probably be a buying opportunity for long-term investors, rather than a reason to panic. Don't miss this second chance at a potentially lucrative opportunity Ever feel like you missed the boat in buying the most successful stocks? Then you'll want to hear this. On rare occasions, our expert team of analysts issues a 'Double Down' stock recommendation for companies that they think are about to pop. If you're worried you've already missed your chance to invest, now is the best time to buy before it's too late. And the numbers speak for themselves: Nvidia: if you invested $1,000 when we doubled down in 2009, you'd have $462,306!* Apple: if you invested $1,000 when we doubled down in 2008, you'd have $38,522!* Netflix: if you invested $1,000 when we doubled down in 2004, you'd have $619,036!* Right now, we're issuing 'Double Down' alerts for three incredible companies, available when you join , and there may not be another chance like this anytime soon.*Stock Advisor returns as of August 4, 2025 JPMorgan Chase is an advertising partner of Motley Fool Money. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends CME Group. The Motley Fool has a disclosure policy. Interest Rates Are About to Do Something They Haven't Done Since December 2024, and It Could Foreshadow a Surprising Move in the Stock Market was originally published by The Motley Fool Sign in to access your portfolio
