Economic Data Moderates Expectations for Fed Interest Rate Cuts
On Thursday, the three major indices on Wall Street all fell. The declines came after the release of U.S. economic data that tempered expectations for a cycle of interest rate cuts by the Federal Reserve.
Key Economic Indicators
- Initial jobless claims for the week prior stood at 218,000, below the expected 235,000 and lower than the previous week’s figure.
- The third estimate for U.S. GDP growth in the second quarter came in at 3.8% annualized, surpassing expectations of 3.3%.
- Orders for durable goods increased by 2.9% in August.
Impact on Investor Sentiment
The FedWatch tool from CME Group, which tracks U.S. interest rate futures, reduced the probability of a 25 basis point cut to the reference rate by the Federal Reserve in October from 92% to 87.7%. This change reflects investor concerns about overvaluation.
Investors are anticipating the release of the Personal Consumption Expenditure (PCE) price index, the Fed’s preferred inflation measure, tomorrow. This data will provide further insights into potential actions by the Federal Reserve in upcoming meetings.
Jerome Powell’s Recent Statements
Recent comments by Federal Reserve Chair Jerome Powell on Monday regarding overvaluation in U.S. equities have influenced investor sentiment. The Dow Jones has dropped 0.79% so far this week.
“Fears of overvaluation persist, but as long as corporate earnings continue to exceed expectations, rumors of a stock market bubble will remain just that – rumors,” said Diego González, Business Development Director at Excent Capital.
Key Questions and Answers
- Q: What caused Wall Street’s recent decline? A: The drop was due to moderated expectations for Federal Reserve interest rate cuts following the release of U.S. economic data.
- Q: Which economic indicators were released, and what did they show? A: Initial jobless claims fell to 218,000, second-quarter GDP growth was revised up to 3.8%, and durable goods orders increased by 2.9%.
- Q: How did the FedWatch tool reflect investor sentiment? A: The tool reduced the probability of a 25 basis point cut to the reference rate in October from 92% to 87.7%, indicating investor concerns about overvaluation.
- Q: What data will investors look for tomorrow? A: Investors are eagerly awaiting the Personal Consumption Expenditure (PCE) price index, which is the Federal Reserve’s preferred inflation measure.
- Q: How have Jerome Powell’s recent statements affected investors? A: Powell’s comments on overvaluation in U.S. equities have contributed to a 0.79% decline in the Dow Jones this week.
