2024-07-31 21:18:28
The US Federal Reserve (Fed) maintained the base interest rate at the current 5.25-5.50% through the Federal Open Market Committee (FOMC) meeting on the 31st (local time). However, through the revision of the monetary policy decision statement and the subsequent press conference, it was suggested that interest rates would be lowered in September unless there were any changes in inflation and employment data that had stabilized. As the Fed’s announcement that day was in line with market expectations, the three major New York stock markets simultaneously rose.
On this day, the Fed revised the wording of its monetary policy statement to reflect the recent downward trend in inflation and the cooling labor market. The previous phrase, “employment remains strong,” was changed to “moderated,” and the expression, “the unemployment rate remains low,” was changed to “moved up but remains low.” The most important change was that the Fed changed the phrase, “We are watching inflation risks very closely,” to “We are watching both responsibilities closely.” Here, the two responsibilities refer to stabilizing both “price” and “employment.”
In a press conference held immediately after the announcement of the decision that day, Fed Chairman Jerome Powell said, “It’s a very difficult problem to make a decision at the right time because if we cut rates too late, employment will suffer, and if we cut rates too early, prices will rise again,” and “Current prices and employment are trending just right, which is what we wanted to see, and we don’t want any more cooling in employment.” In effect, he suggested that he would cut rates unless there was a sudden increase in inflation data by September, when the next rate decision is made.
In response to some who argued that the Fed should have cut rates in July instead of September given the recent rapid cooling in employment, he explained, “Some members had that opinion, but the majority supported maintaining the current rates.” In response to others who argued that cutting rates in September would affect the political event of the November presidential election, he said, “The Fed absolutely does not intervene in politics and does not want to be intervened in,” emphasizing that “we have made decisions based solely on data and only on what is in the best interest of the American people, and we will continue to do so.”
The Personal Consumption Expenditures (PCE) Index, which the Fed previously considered most important, saying that “2% achievement is necessary,” rose 2.5% year-on-year in June, already entering the 2% range. The U.S. unemployment rate in June also rose to 4.1%, the highest in 2 years and 7 months, reflecting the rapid cooling of the job market. Some experts have expressed concern that the Fed is coming too late. In response, Chairman Powell said, “The current price and employment situation is exactly as we expected, but we have only seen this data for one quarter,” and “We need more confidence through future data.” He was worried that inflation, which seemed stable in past economic policies, suddenly rose due to changes in monetary policy, causing greater damage.
“If the test (of economic indicators remaining at current levels) is met, a rate cut could be discussed at the September meeting,” Powell said. “We will make a decision not based on simple numbers, but on the totality of the data, the outlook being generated, and the balance of risks.”
The next FOMC meeting is on September 17th and 18th. If there is a rate cut in September, it is likely to be by 0.25 percentage points. Some have speculated that it could be by 0.5 percentage points, given the recent cooling in employment, but Powell said, “That is not a possibility we are considering right now.”
Meanwhile, as the Fed’s decision that day met market expectations and continued comments suggesting a September interest rate cut, the three major stock markets in New York all closed higher. On that day, the Dow Jones Industrial Average, which is centered on blue chips, closed at 48,422.79, up 99.46 points (0.24%) from the previous trading day. The S&P 500, which is centered on large-cap stocks, rose 85.86 points (1.58%) to 5,522.3, and the Nasdaq, which is centered on technology stocks, closed at 17,599.4, up 451.98 points (2.64%).
Nvidia, which had been falling recently due to concerns over an artificial intelligence (AI) bubble, rebounded by soaring 12.81%. Semiconductor company AMD rose 4.36%, and Apple rose 1.5%.
New York = Correspondent Im Woo-sun [email protected]
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2024-07-31 21:18:28