{"id":254386,"date":"2024-08-14T23:03:32","date_gmt":"2024-08-14T23:03:32","guid":{"rendered":"https:\/\/michigandigitalnews.com\/index.php\/2024\/08\/14\/fed-rate-cut-looms-a-september-slash-is-expected-but-the-size-of-the-cut-is-unknown\/"},"modified":"2025-06-25T17:12:23","modified_gmt":"2025-06-25T17:12:23","slug":"fed-rate-cut-looms-a-september-slash-is-expected-but-the-size-of-the-cut-is-unknown","status":"publish","type":"post","link":"https:\/\/michigandigitalnews.com\/index.php\/2024\/08\/14\/fed-rate-cut-looms-a-september-slash-is-expected-but-the-size-of-the-cut-is-unknown\/","title":{"rendered":"Fed rate cut looms\u2014a September slash is expected, but the size of the cut is unknown"},"content":{"rendered":"

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Stocks rose after an in-line U.S. inflation report did little to alter bets the Federal Reserve will start cutting rates in September.<\/p>\n

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The S&P 500 headed toward its fifth straight day of gains, the longest winning streak in more than month. Most of its major groups advanced, with financial and energy shares leading the charge. Treasuries saw small moves. The dollar hovered near a four-month low.<\/p>\n

The consumer price index reinforced the trend of disinflation and brought a degree of relief to markets still reeling after last week\u2019s meltdown. Combined with a softening job market, the Fed is widely expected to start lowering rates next month, while the size of the cut will likely be determined by incoming data.<\/p>\n

\u201cIt may not have been as cool as yesterday\u2019s PPI, but today\u2019s as-expected CPI likely will not rock the boat,\u201d said Chris Larkin at E*Trade from Morgan Stanley<\/a>. \u201cNow the primary question is whether the Fed will cut rates by 25 or 50 basis points next month. If most of the data over the next five weeks points to a slowing economy, the Fed may cut more aggressively.\u201d<\/p>\n

At Evercore<\/a>, Krishna Guha said the July CPI was not perfect, but it was good enough as it was consistent with a tame read on the Fed\u2019s preferred inflation measure. In addition, the central bank has disavowed data-point dependence, and is looking at the wider outlook and balance of risks, with downside risks to employment dominating since the July employment report.<\/p>\n

\u201cThis is now a labor data-first Fed, not an inflation data-first Fed, and the incoming labor data will determine how aggressively the Fed pulls forward rate cuts,\u201d Guha noted.<\/p>\n

The S&P 500 hovered near 5,455. Megacaps were mixed, with Nvidia<\/a> Corp. up and Alphabet<\/a> Inc. down. Wall Street\u2019s \u201cfear gauge\u201d \u2013 the VIX \u2013 continued to subside, dropping below 17. That\u2019s after an unprecedented spike that took the gauge above 65 last week.\u00a0<\/p>\n

Treasury 10-year yields declined two basis points to 3.82%.<\/p>\n

\u201cThe stress of the market decline is a fading memory,\u201d said Mark Hackett at Nationwide. \u201cCalming macro fears, the return of share repurchases, and stabilizing momentum provide an improved backdrop for equities.\u201d<\/p>\n

The latest consumer price report \u201cchecked the box\u201d for the Fed to start cutting rates in September, according to TD Securities\u2019 strategists led by Oscar Munoz and Gennadiy Goldberg.<\/p>\n

\u201cToday\u2019s CPI report is again unambiguously welcome news for the Federal Reserve,\u201d they said. \u201cAs risks have become truly two-sided for the US economy, if not slightly tilted toward downward employment outcomes, we expect the Fed\u2019s upcoming decision to come down to the magnitude of the first rate cut.\u201d<\/p>\n

To Chris Zaccarelli at Independent Advisor Alliance, the July CPI print is the ultimate \u201cno news, is good news\u201d because the markets have been on edge and the Fed is looking to cut interest rates \u2014 and nothing in this report should deter them from doing so.<\/p>\n

\u201cRecent volatility has largely been driven by macro news, and this is a case of \u2018dull news is good news\u2019,\u201d said Neil Birrell at Premier Miton Investors. \u201cIt also allows the Fed breathing space as they weigh the economy ahead of their next meeting.\u201d<\/p>\n

At Principal Asset Management, Seema Shah says the CPI print removes any lingering inflation obstacles that may have been preventing the Fed from starting the rate cutting cycle in September. Yet, the number also suggests limited urgency for a 50 basis-point cut.<\/p>\n

\u201cIt offers little new information to guide the future decisions of the Fed, aside from potentially supporting a rate cut due to job market concerns,\u201d according to Florian Ielpo at Lombard Odier Investment Managers.<\/p>\n

\u201cThe soft CPI report will likely give Fed officials modestly more confidence that inflation is on the way down,\u201d said Anna Wong and Stuart Paul at Bloomberg Economics. \u201cEven though July\u2019s core PCE inflation print won\u2019t be as good, we expect the Fed to cut rates in September due to the rising unemployment rate.\u201d<\/p>\n

Traders<\/a>\u00a0are still pricing in just over 1 percentage point worth of rate reductions in 2024, with three Fed policy meetings remaining this year. In recent sessions, market pricing had shown a split on the outcome of either 25 or 50 basis points worth of rate reductions next month.<\/p>\n

\u201cThe inflation data has been good enough to allow the Fed to start cutting rates in September, but does not give them a reason to cut aggressively,\u201d said Brian Rose at UBS Global Wealth Management. \u201cThe decision whether to cut by 50 basis points instead of the usual 25 bps may come down to the August labor report.\u201d<\/p>\n

Rose also notes that Thursday\u2019s retail sales data is another critical release as the main downside risk to his base case scenario of a soft landing is a pullback in consumer spending.<\/p>\n

\u201cThe US economy is sustainably cooling, and the labor market is exhibiting a bit of slowing,\u201d said Neil Sun, a BlueBay portfolio manager at RBC Global Asset Management. \u201cHowever, we are not overly concerned over US recession risks in the short-term. We stand ready to thoughtfully capitalize on any pockets of volatility should underlying trends of cooling inflation and sustainably slowing US economy continue.\u201d<\/p>\n

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