Compared with Tuesday, futures markets now see a slightly greater possibility of a 0.50 percentage point cut, although more investors still expect the smaller 0.25 point cut
Wall Street stocks climbed Wednesday on growing expectations for Fed interest rate cuts following an up day on European equity bourses and a down day in Asia.
Futures markets continued to bet on a September interest rate cut following Fed meeting minutes in which a majority of policy makers expressed support for an interest rate cut if economic data plays out as expected.
The Fed minutes were “dovish and though they’re dated, they suggest the debate is not whether the central bank cuts interest rate at its upcoming September meeting but rather how aggressive the initial phase of this normalization cycle should be,” according to a note from Oxford Economics.
Analysts have cited a weakening jobs market as a driver of likely Fed rate reductions, although there are still hopes for a so-called soft landing that averts a US recession.
Labor Department figures released Wednesday showed US employers added around 68,000 fewer jobs monthly in the 12-month period through March 2024 compared with earlier estimates.
Compared with Tuesday, futures markets now see a slightly greater possibility of a 0.50 percentage point cut, although more investors still expect the smaller 0.25 point cut.
After a wild ride in the past three weeks that had little basis in fundamentals, markets have settled on predicting a first 25 bp Fed rate cut at its 18 September meeting, according to Holger Schmieding, chief economist at Berenberg bank.
But Stephen Innes, managing partner from SPI Asset Management, warned that it would not take much more than a bump in the unemployment rate to shove the market right back into 50 basis points territory.
Other central banks, including the ECB and BoE, have already started to cut borrowing costs.
Markets are looking ahead to an address Friday by US Fed chief Jerome Powell at an annual gathering of central bank chiefs in Jackson Hole, Wyoming, on Friday.
