VIEW Fed holds rates steady, but slows expected pace of future cuts
In new economic projections, policymakers sketched a modestly stagflationary picture of the U.S. economy, with economic growth slowing to 1.4% this year, unemployment rising to 4.5% by the end of this year, and inflation finishing 2025 at 3%, well above the current level.
While policymakers still anticipate cutting rates by half a percentage point this year, as they projected in March and December, they slightly slowed the pace to a single quarter-percentage-point cut in each of 2026 and 2027 in a protracted fight to return inflation to the central bank's 2% target.
MARKET REACTION:
STOCKS: The S&P 500 (.SPX), opens new tab briefly added to gains before fading and was last up 0.27%
BONDS: The yield on benchmark U.S. 10-year notes was down 2.2 basis points to 4.369%. The 2-year note yield fell 3.6 basis points to 3.914%
FOREX: The dollar index extended declines and was down 0.23% to 98.60, with the euro up 0.3% at $1.1512.
COMMENTS:
MOLLY BROOKS, US RATES STRATEGIST, TD SECURITIES, NEW YORK:
'The market reaction was somewhat muted, even though going in it seemed at least economists' estimates of the dots for 2025 seemed a bit split between one and two. The markets didn't really seem to react to staying at two as very dovish here. I think some of it is the statement, it seemed to be continuing on the whole waiting-and-seeing, waiting-and-watching trend that the Fed has been on.
'Part of the 2025 dots that we were looking at is a time decay piece, where you're seeing less meetings in 2025 than we did in March, and we'll see even less in the next SEP, and so as time continues, if they don't cut, then you have to keep pushing out the cuts to 2026.'
JACK MCINTYRE, PORTFOLIO MANAGER FOR GLOBAL FIXED INCOME, BRANDYWINE GLOBAL INVESTMENT MANAGEMENT, PHILADELPHIA, PA:
"There's still bias towards some version of stagnation, lower growth with rising sticky inflation.
" It feels like it's a Fed that's still being very patient, and they're still biased towards cutting rates in the near future."
"I don't think there was too much of a surprise in what we saw. The Fed took up the inflation expectations - obviously to be conservative in terms of the potential impact of tariffs - and took down their growth forecast slightly. That was somewhat expected. I don't think there was anything that was needle moving.
"Now the nuances come in with Chairman Powell's answers and body language at the press conference."
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:
'The Fed is looking at slower economic growth and the vote was unanimous and the fact that rates remain unchanged is no surprise.
'They do state that the economy is slowed, but still on solid footing. The dot plot is looking for two cuts this year and of course they repeat the fact that if need be, they would reconsider their present monetary (stance).
'So you know that's nothing new and we really don't have any much change here and so I would say that this statement is a little bit on the hawkish side, and I would characterize it as the same for the last month with the caveat that we could we could see slower and as far as the labor market is concerned, there's not much change in thinking there.'
'So, I would say this communique indicates that if things were to slow down too much in the summer months. or if there we see negative growth in this quarter, that Fed is likely to reduce interest rates by 50 basis points once, in September, as opposed to two 25 bp rate cuts.'
'What does this mean for the market? I don't think very much."
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:
"There's a subtle shift in the language about the unemployment rate. They're no longer confident that it has stabilized. The balance of risks is shifting from being in balance to being tilted towards a slowdown. Instead of watching inflation like a hawk, the Fed is shifting its gaze to the labor market. The unemployment rate will be an unreliable gauge of the health of the labor market with the immigration crackdown and decline in the labor force participation rate. Instead, Powell might pull a Yellen and start talking about a wide range of labor market indicators they're monitoring."
MATTHIAS SCHEIBER, HEAD OF THE MULTI-ASSET TEAM, ALLSPRING GLOBAL INVESTMENTS, LONDON:
With the ongoing uncertainty around tariffs and a still-robust U.S. labor market, the Fed is taking a widely expected 'wait and see' approach on rates. From our perspective, the next likely window for the Fed to lower rates will be September. We expect the Fed to potentially cut interest rates twice this year should inflation continue to drop toward its 2.0% target.
"We expect equity market performance to remain volatile and continue to favor cheaper parts of the U.S. equity market, international equities, and emerging market equities given better valuations, more fiscal and monetary stimulus likely to come, and higher valuations of a number of U.S. large-cap equities. Our outlook for higher-quality bonds remains favorable given still-attractive overall yields."
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Independent
28 minutes ago
- The Independent
Labour fails to rule out annual tuition fee rise to stop universities going bust
The education secretary has said the government is looking at allowing universities to hike tuition fees every year based on inflation to stop them going bust. It comes less than a year after Bridget Phillipson announced that fees would increase in England for the first time in eight years as part of a major overhaul of the higher education system. Tuition fees have been frozen at £9,250 since 2017, but in November, it was announced that they would increase in line with the Retail Price Index inflation in September 2025. Asked whether the government would allow universities an inflation-linked tuition fee increase every year to improve their financial situation, Ms Phillipson did not rule it out. She told BBC Radio 4's Today Programme: 'We did give universities an increase through the tuition fee increase that we delivered last year, but we'll be looking at all of these areas around the long-term financial sustainability of universities as part of that post-16 white paper that we'll set out later on this year. 'We do also believe alongside that further reform will be needed, but also working together with other institutions, like further education, to bring education, training opportunities and skills much closer to where people are, including those people – adults, in particular – who might be further away from the labour market.' The remarks – which came on A-level results day – appear to set Labour on course for a clash with one of their biggest voter bases, students, and come despite Sir Keir Starmer's promise to abolish university tuition fees entirely when he stood to be Labour leader in 2020. He rowed back on the pledge in 2023, saying it was no longer affordable as a result of the country's financial situation, instead promising Labour would come up with a 'fairer solution' if it formed the next government. It comes amid growing concern over the state of the education sector, with many universities facing financial crisis. As many as 40 per cent of English universities are expected to fall into a budget deficit this year, a report from the Office for Students (OfS) said. The OfS, which regulates higher education providers, said universities needed "significant reform and efficiencies" to turn the tide, despite some institutions already closing courses and selling buildings to cut costs. It said a drop in international students coming to the UK was the main reason for the worsening financial position. Speaking on Thursday, Ms Phillipson said the government had already taken action to help universities, but that there is more to do. Asked about universities' financial struggles, she told Times Radio: 'I've made it a priority to put our universities on a more sustainable footing. 'The action that we've taken in turning around the regulator, the Office for Students, much more of a focus on universities' financial health, but also the difficult but necessary decision that we took quite early on as a government to increase tuition fees to make sure that universities have a more stable funding stream into the future. 'There is more to do and later on this year we'll be setting out our plans for post-16 education overall, including universities, through a white paper we'll be publishing.' On international students, the education secretary said they made an 'important contribution' to the UK's universities and economy, and 'will always be welcome in the UK'. She added: 'It is also fair to say that some institutions, their business model has allowed them to become too dependent on international students, and therefore too open to any fluctuations that may happen around that.'
Reuters
29 minutes ago
- Reuters
ECB to hold rates until at least December on stable economic outlook: Reuters poll
BENGALURU, Aug 14 (Reuters) - The European Central Bank will hold interest rates at 2.00% in September according to a majority of economists polled by Reuters, with the euro zone's economic outlook broadly unchanged after the EU agreed a trade deal with the United States. Expectations have shifted from the previous poll in July when the majority of economists had forecast another rate cut next month. Now policymakers are seen waiting until December if they opt to cut rates one more time, but there is no longer a majority consensus for where the deposit rate will be by end-year. While most respondents said the 15% U.S. tariff on EU goods could weigh on growth and dampen price pressures, upcoming fiscal support, particularly from Germany, and reduced uncertainty are seen keeping the bloc on a steady growth path. Inflation is already at the ECB's target of 2%, providing additional assurance for policymakers. The central bank held rates last month, after a cumulative 200 basis point reduction since June 2024. The steady economic outlook is in contrast to the United States, where the jobs market is weakening, inflation is ticking higher and the Federal Reserve, which has held rates steady all year, faces growing doubts over its future independence from political interference. A majority of economists, 46 of 72, in the August 11-14 poll expect the ECB's Governing Council to leave interest rates unchanged next month. "Many of the GC members, whether they be hawks or doves, have been saying they don't need to do anything right now," said George Buckley, chief European economist at Nomura. "We've got a combination of rates that are neutral, growth at trend and inflation moving to the target or staying roughly around it." The 2% deposit rate is the midpoint of the ECB's estimated neutral rate range of 1.75% to 2.25% which neither stimulates nor restricts economic growth. Last month, nearly 60% of economists said there would be one more rate cut by year-end. Now just 47%, 34 of 72, expect one more cut, likely in December, while 31 forecast no further reduction and seven saw two additional 25 basis point cuts. "We are in a world in which tariffs are pretty much disinflationary. Certainly, this contributes to further risks the ECB could cut rates, but it's not necessarily bad enough for them to do it," said Fabio Balboni, senior European economist at HSBC. "We won't have enough new information by (September)...if I have to give a time for a possible further rate cut, maybe more likely December or even the start of next year." Inflation will average around 2% at least until 2027, according to poll medians, an outlook stable since June. The euro zone economy is forecast to grow 1.1% this year, 1.2% in 2026 and 1.4% in 2027, also broadly unchanged since June. "The (trade) deal was pretty much close to our base case," said Chris Scicluna, head of economic research at Daiwa Capital Markets. "Businesses have a little bit more certainty in terms of planning investments going forward." (Other stories from the Reuters global economic poll)
Reuters
29 minutes ago
- Reuters
Equinix enters into multiple advanced nuclear deals to power data centers
NEW YORK, Aug 14 (Reuters) - Major data center developer and operator Equinix (EQIX.O), opens new tab has entered into several advanced nuclear electricity deals, including power purchase agreements for fission energy and pre-ordering microreactors for its operations, the company said on Thursday. Big Tech's race to expand technologies like generative artificial intelligence, which requires warehouse-like data centers that can require city-sized amounts of electricity at a single site, is driving up global energy consumption and raising fears about depleted power supplies. The voracious energy needs of data centers has led to a rising number of preliminary power deals to fuel data centers with advanced nuclear energy. Small modular reactors and other next-generation energy is not yet commercially available in the U.S., the world's data center hub. The Equinix announcement follows news that the U.S. Department of Energy earlier had selected an initial 11 projects for a pilot program seeking to develop high-tech test nuclear reactors with the aim of getting three of the projects operating in less than a year. Equinix's deals with advanced nuclear providers would supply more than 1 gigawatt of electricity to the company's data centers. Among the agreements, Equinix plans to procure 500 megawatts of energy from California-based Oklo's next-generation nuclear fission powerhouses. It also entered into a preorder agreement for 20 transportable microreactors from Radiant Nuclear, which is also based in California. In Europe, Equinix's agreements to eventually purchase power from next-generation nuclear developers, ULC-Energy and Stellaria. Equinix also entered into advanced fuel cell agreements with Bloom Energy, based in Silicon Valley. The agreements are part of Equinix's long-term planning for electricity to use for its data centers, as opposed to a quick-fix solution, Raouf Abdel, Equinix's executive vice president of global operations, told Reuters.
