“The time has come,” the Walrus said,
“To talk of many things:
Of shoes—and ships—and sealing-wax—
Of cabbages—and kings—
And why the sea is boiling hot—
And whether pigs have wings.”
– “Through the Looking-Glass,” by Lewis Carroll
Fed’s Powell Declares ‘Time Has Come’ for Rate Cuts
Fed chair says at Jackson Hole summit that central bank intends to act to stave off labor-market weakening
By Paul Kiernan, The Wall Street Journal, Updated Aug. 23, 2024
Federal Reserve Chair Jerome Powell gave his strongest signal yet that interest-rate cuts are coming soon, saying the central bank intends to act to stave off a further weakening of the U.S. labor market.
“We do not seek or welcome further cooling in labor market conditions,” Powell said in a speech at the central bank’s annual gathering in the Grand Teton National Park on Friday. “The time has come for policy to adjust.”
Investors had already been expecting a rate cut in September, but markets still reacted to Powell’s words. Stock indexes rose, with the Dow Jones Industrial Average adding more than 400 points, or about 1.1%. The Nasdaq Composite zipped up 1.5%. Treasury yields slipped…
The Fed’s key rate is currently set in a range between 5.25% and 5.5%, widely viewed as a drag on economic activity. Market participants are divided as to whether the Fed will shave off 0.25 percentage point or 0.5 percentage point at the September meeting. Investors are also divided on what the Fed will do at its other two meetings this year, in November and December… [end quote]
The last 3 fed funds tightening cycles ended with the Fed cutting rates sharply and holding them very low for a long time. (2000, 2007, 2020)
Will the Fed follow a similar path in 2024 even though there isn’t a recession?
The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2024 was 2.0 percent on August 16, down from 2.4 percent on August 15. This is slowing but it is far from a recession.
Fed Chair Powell has announced just what the market expected. The Fear & Greed index is now neutral. The trade is turning toward risk-on.
Stock market indicators have turned positive.
The Treasury yield curve has dropped sharply and has a positive slope over 5 to 20 year duration.
Quarterly annualized percent change inflation is in range of the Fed’s goal.
The Fed’s open communication and steady actions have encouraged the markets.
The METAR for next week is sunny.
Wendy