The News
The Federal Reserve won’t cut market interest rates today, but left the door open to a future cut. Investors are betting on September, when more data could show that their inflation-battling measures have worked.
Most economists, and signs from bond-trading markets, predicted that the central bank would hold rates steady after it wrapped up a two-day meeting on Wednesday, but would start lowering borrowing costs in September.
Inflation dipped to 3% in June, still above the Fed’s 2% goal but trending downward.
SIGNALS
Fed should follow Bank of Canada’s example
The Fed should follow the Bank of Canada’s example and cut interest rates despite both facing similar “sticky components,” one expert argued, including high living prices and labor costs. These components that prevent inflation from cooling more quickly did not prevent the BOC from cutting interest rates, and neither should they stop the US, wrote Kristina Hooper, the Chief Global Market Strategist at investment management firm Invesco. “US monetary policy is far too restrictive given the progress made on disinflation and the state of the economy,” Hooper said.
Tech stocks rally ahead of announcement
US tech stocks surged Wednesday as investors anticipated the Fed’s next move. The NASDAQ index rose 2.1%, its best gain since Feb. 22 this year. The surge was driven by semiconductor giants like Nvidia, which saw a 10.8% gain, and its rival, Advanced Micro Devices, which clocked a nearly 5.1% gain by noon on Wednesday. “In many cases, chip stocks are overvalued at this point,” a market strategist told Reuters. “There may be some room for them to run here, but then again they’re not going to be able to maintain that pace.”
Economy is a ‘double-edge sword’ for Kamala Harris
Faster-than-expected economic growth and faster-than-anticipated inflation that is cooling — steadily, if not as quickly as policymakers would like — will be helpful to Vice President Kamala Harris as she ramps up her presidential campaign. An impending rate cut “will go a long way” for consumers and could help restore voters’ confidence in the economy, one economist said, providing Harris with an “auspicious moment.” But it could be a “double-edged sword”, the Hill wrote, if voters continue to blame her and the Biden administration for inflation in the first place.