Placement|Expectations about the Fed’s interest rate cuts suddenly changed when recession worries were swept away.
The summary is made by artificial intelligence and checked by a human.
The US economy is in better shape than expected, which bodes well for the stock market.
The US labor market gained 254,000 new jobs in September, exceeding expectations.
The Fed is unlikely to cut the key interest rate in November as much as previously believed.
The stock market rose to an all-time high for the Dow Jones index on Friday.
of the United States the economy is now doing better than expected, and it also bodes well for the stock market.
Fears that the US economy could fall into recession were swept away in one fell swoop on Friday.
At the time, the US labor market received clearly better than expected numbers and with that, expectations about the central bank Fed’s interest rate cuts were immediately renewed.
The market now believes that the Fed does not need to lower its key interest rates as fast as previously thought, when the economy is doing well.
As recently as Thursday, it was widely believed in the market that the Fed will lower its key interest rate by 0.50 percentage points at its next meeting, i.e. in November. After the employment report published on Friday, the direction changed and the Fed is now believed to be satisfied with a rate cut of only 0.25 percentage points.
Better than expected according to the employment report in September, as many as 254,000 new jobs were created in the United States, while the market expected only 150,000 jobs. The number of new jobs was the highest in six months.
The figures for August and July were also refined upwards.
The unemployment rate also fell to 4.1 percent in September from 4.2 percent in August.
Yet in August, the market feared that the US economy could fall into recession, and interest rate cuts were rushed. This was reflected in the fact that the Fed started its policy interest rate cuts in September with a brisk 0.50 percentage point drop.
“With hindsight, it can be said that September’s 0.50 percentage point interest rate cut was a mistake, although there have been no significant consequences,” wrote the former US Treasury secretary Lawrence Summers message service in X.
Chief Strategist at Met Life Drew Matus on the other hand, the news agency estimates for Bloomberg that the Fed is forced to slow down because it cannot afford to let inflation accelerate again. This could happen if interest rates were too low in a good economic situation.
According to Matus, the Fed’s options at the November meeting are either an interest rate cut of 0.25 percentage points or no interest rate cut at all.
“The market data has been exceptionally positive since the Fed lowered its key interest rate in September”, also assesses the Bank of America economist Aditya Bhave news agency Reuters.
Bank of America expects the Fed to cut its key interest rate by 0.25 percentage points at each of its next meetings.
News the better-than-expected condition of the economy also accelerated the stock market in the United States on Friday to an all-time record for the Dow Jones index.
Other indices also ended up on the rise.
Concern over the pace of the Fed’s interest rate cuts has been one of the stock market’s main concerns recently. Interest rate cuts must continue believed to support the stock market continuation of the recent rise.
On the other hand, a slowdown in interest rate cuts is not a bad sign either, if the reason is the better-than-expected condition of the economy.
Until now, investors have been worried about whether the so-called soft fall of the US economy, i.e. a controlled slowdown, will succeed or whether it will fall into recession. Now these worries faded away, at least for a while.
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