Stocks surged on Friday as Wall Street reacted positively to Federal Reserve Chair Jerome Powell’s remarks indicating that long-awaited interest rate cuts are on the horizon. The Dow Jones Industrial Average climbed 467 points, or 1.12%, while the S&P 500 rose by 1.1%, and the Nasdaq Composite added 1.4%. All three major indexes are set to close the week higher, marking a strong response to Powell’s comments at the Jackson Hole Economic Symposium in Wyoming.
In his highly anticipated speech, Powell stated that “the time has come” to reduce rates, which currently stand at their highest level in 23 years. This announcement comes as the labor market shows signs of cooling, reducing inflationary pressures. Powell emphasized that the Federal Reserve does not want to see further weakening in the job market, signaling a cautious approach to the timing and scale of rate cuts.
The possibility of a rate cut in September now appears to be a foregone conclusion. However, the broader question remains whether this will be a one-off adjustment or the beginning of a more substantial easing cycle. According to Glen Smith, Chief Investment Officer of GDS Wealth Management, “the economic data over the next two to three months will be crucial in determining the Fed’s next steps.”
Minutes from the Federal Reserve’s July meeting, released earlier this week, revealed that the “vast majority” of the Federal Open Market Committee (FOMC) members would support lowering rates in September if inflation continues to decelerate. Some officials also voiced concerns that keeping monetary policy too tight for an extended period could significantly weaken an already softening labor market. This anxiety is fueled by recent data from the Bureau of Labor Statistics, which revised its employment figures, showing 818,000 fewer jobs than previously estimated between March 2023 and March 2024.
The revised job growth data, alongside slowing inflation, has led market participants to predict not just a September rate cut, but additional reductions in November and December. However, some analysts are skeptical about the likelihood of a more aggressive half-point rate cut next month. They argue that such a move could signal that the economy is in, or heading toward, a recession—a scenario the Fed is keen to avoid.
Despite these concerns, fears of an economic downturn have abated somewhat since the release of a weak July jobs report, which initially rattled markets earlier this month. Optimism has been restored by a cooler-than-expected consumer inflation report and robust retail sales data, which suggest the economy may be heading for a “soft landing”—where the Fed manages to curb inflation without triggering a recession.
In the broader market, gold futures briefly touched a record high of $2,570.40 per troy ounce on Tuesday before retreating. Meanwhile, the real estate market showed signs of resilience, with sales of previously owned homes rising by 1.3% in July, breaking a four-month decline.
Also Read: Google and California Strike Historic Deal to Fund Local Newsrooms
In corporate news, Target shares jumped 10.5% this week following a strong quarterly earnings report, while Macy’s shares dropped 10% after disappointing sales and a lowered revenue forecast. Boeing shares fell 1.9% after the company reported structural issues in its 777X aircraft during a test flight, adding to the aerospace giant’s ongoing challenges.
As the market digests Powell’s comments and prepares for potential rate cuts, investors remain cautiously optimistic, focusing on upcoming economic data to gauge the Fed’s next move.
