📊 🚀 2 More Rate Cuts Ahead – 3 Economic Update on Fed's Bold Moves💰

Just this morning, Federal Reserve Chairman Jerome Powell spoke to the National Association for Business Economics in Nashville. He shared his thoughts on both the good news and the challenges we face, which raises questions about future interest rates.

Let’s look at the important points from his speech and what they could mean for our economy.

1. Powell's Economic Overview

Federal Reserve Chairman Jerome Powell painted an optimistic yet cautious picture of the U.S. economy. He declared that the economy is “strong overall,” with GDP growing at an impressive 2.4% annual rate in the last quarter.

However, he hinted at the possibility of more interest rate cuts in 2024.

Powell noted that the tight monetary policies of the past two years—raising interest rates to their highest levels in 20 years (a range of 5.25% to 5.50%)—have successfully restored balance between supply and demand. He also mentioned that inflation is now much closer to the Fed's target of 2%, having dropped from a peak of 9.1% last summer.

“That patient approach has paid dividends,” he stated.

2. Possible Rate Cuts Ahead

During his speech, Powell discussed the potential for two additional interest rate cuts this year, totaling 50 basis points (0.50%). This would be part of a “recalibration” of monetary policy to reflect their progress. If the economy performs as expected, these cuts could take place before the end of 2024.

While he acknowledged the likelihood of these cuts, he also stressed that the Fed is not in a hurry to implement them quickly, as there are still key economic reports to review before the next meeting in November.

He highlighted that the labor market has shown signs of cooling. There are currently 7.7 million job openings, which is a drop of 200,000 from the 7.9 million reported in June. Overall, job openings have decreased by 1.1 million in the past year.

3. Market Reactions

Although Powell's comments initially caused a temporary drop in the Dow Jones Industrial Average by over 200 points, the major U.S. stock indexes rebounded positively. The S&P 500 closed at a record high, gaining 0.42% on the day, while the Dow reached an all-time closing high, reflecting a quarterly gain of 8.2%.

For September, the S&P 500 achieved its best performance since 2013, rising by 2%, while the Nasdaq Composite increased by nearly 3%. Analysts noted that the end of the month saw typical profit-taking and rebalancing activities.

What’s Next?

As we move forward, all eyes will be on the upcoming jobs report, expected to show how the labor market is evolving. Economists predict that approximately 146,000 jobs were added in September, a slight increase from 142,000 in August.

This report will be crucial for influencing the Fed's decisions in November.

Powell's remarks have raised questions about how aggressive the Fed needs to be with interest rate policies. Some Fed members, like Governor Michelle Bowman, worry that larger cuts could signal weakness in the economy, advocating for smaller, more gradual adjustments.

Conclusion

In summary, the U.S. economy is in a strong position—with GDP growing at 2.4% and inflation nearing 2%—but the Federal Reserve is contemplating further interest rate cuts to ensure continued growth. Powell's cautious yet optimistic speech leaves investors hopeful, but the upcoming jobs report will be a key indicator of whether the Fed's strategies are on point or if more drastic measures are needed.

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