Key Takeaways:
- Two more 0.25% cuts are expected this year.
- Future cuts will be done with caution, and data-based.
- Fed is not on any preset course.
Fed Implements Half-Point Rate Cut, Market Tumbles
In a Monday speech delivered to the National Association for Business Economics in Nashville, Tennessee, Federal Reserve Chair Jerome Powell tempered expectations for future rate cuts. He indicated that the recent half-percentage point reduction would not set a precedent for future actions, and instead, signaled a shift toward smaller, more measured rate cuts moving forward.
Following Powell’s remarks, the Dow Jones Industrial Average dropped 351 points (0.8%) to 41,960. The Nasdaq and S&P 500 also declined by 0.6% and 0.5%, respectively.
Labor Market, Inflation & Future Rate Outlook
Powell acknowledged that risks remain for both inflation and economic growth. Inflation in housing services has been slow to decline, but he expects rent-related inflation to decrease soon. Powell pointed out that core goods prices have dropped by 0.5% over the past year, a sign of steady progress toward the Fed’s 2% inflation goal.
Powell expressed confidence in the labor market, noting that layoffs remain low and participation rates for workers aged 25-54, especially women, are at or near record highs. Inflation has eased to 2.2%, but core inflation is still high at 2.7%.
Despite the recent cut, he assured that future rate decisions would be cautious and made meeting by meeting, avoiding aggressive reductions unless necessary. He emphasized that the Fed will continue adjusting rates based on economic data, without following a preset course.
Market Update Into September 7th: Inflation Data Incoming