Written Commentary
STOCK INDEX FUTURES
Stock index futures are sharply higher after yesterday the Federal Open Market Committee decided to lower its fed funds rate by 50 basis points to 4.75% – 5.00%. This was the first rate cut since March 2020. Federal Reserve Chair Powell said the central bank is not in a rush to ease policy and that half-percentage point cuts are not the “new pace.”
Jobless claims in the week ended September 14 were 219,000 when 230,000 were expected.
The September Philadelphia Federal Reserve manufacturing index was 1.7 when 2.0 was anticipated.
The 9:00 central time August existing home sales report is forecast to show 3.9 million, and the 9:00 August leading indicators report is predicted to show a 0.3% decline.
CURRENCY FUTURES
The U.S. dollar index is higher after the release of the jobless claims report.
The Bank of England’s Monetary Policy Committee at its meeting today maintained its base rate at 5.00% as widely expected.
The Bank of Japan will hold its policy meeting tomorrow. The central bank will probably keep its short-term interest rate at the current level of 25 basis points.
Australia’s job market grew much more than expected in August. The total number of employed people increased by 47,500, according to data from the Australian Bureau of Statistics. Economists expected an increase of 26,400.
INTEREST RATE MARKET FUTURES
Futures came under pressure when the smaller than expected jobless claims report was released.
Yesterday the Federal Open Market Committee released its economic projections. The unemployment rate projection for 2024 was increased from 4.0% to 4.4%. The PCE Inflation projection was lowered from 2.6% to 2.3%, and the Core PCE Inflation projection was reduced from 2.8% to 2.6%.
The central bank believes the fed funds rate will decline to 4.4% by the end of 2024, which compares to the previous forecast of 5.1%. The estimate for 2025 was changed from 4.1% to 3.1%.
Currently there is a 70% probability that the Federal Open Market Committee will lower its funds rate by 25 basis points at its November 7 policy meeting, and there is a 30% chance of a 50 basis point reduction.
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