Stock markets wobbled on Thursday (8/22) as investors anticipated a speech by US Federal Reserve (The Fed) Chairman Jerome Powell, with hopes he would provide more clues regarding the interest rate cut the market is expecting.
On Friday (8/23), the spotlight will be on Powell when he speaks at the annual meeting of global central bankers in Jackson Hole, Wyoming, where investors hope to catch new signals about the Fed's plans.
“We can see increasing tensions ahead of Powell’s speech,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, told AFP news agency.
“The market is bracing for possible turbulence on Friday,” he added.
Investor confidence in a rate cut increased after minutes from the Fed’s July policy meeting, released Wednesday (8/21), showed that most Fed members believed the plan to lower borrowing costs in September was the “right” decision.
Traders' confidence was also boosted by official figures showing that US employers added about 68,000 more jobs each month in the year to March than initially estimated.
U.S. data released Thursday (4/22) showed initial jobless claims rose by 4,000 last week, a modest development, “which is unlikely to change the market’s view of a rate cut,” said Briefing.com analyst Patrick O'Hare.
An improving U.S. labor market, coupled with slowing inflation, gives the Fed room to start lowering interest rates, which have reached a 23-year high, to curb soaring consumer prices.
The only doubt remains about how far the Fed will go, with many analysts expecting a cut of 25 basis points (a quarter of a percent) in September and a total of 100 basis points (one percent) by the end of the year.
“Investors trimmed long positions ahead of Powell’s speech on Friday, with expectations that the Fed Chair will likely signal a rate cut in September, albeit at a modest pace,” Ozkardeskaya said.
Some analysts expect the Fed to cut interest rates by 100 basis points by the end of this year.
“If Powell is optimistic about the economy, it would reinforce the broader view that the U.S. is likely to avoid a recession, which has fueled the recent equity market recovery,” he said.
“However, it also suggests that smaller rate cuts, totaling 75 basis points, rather than 100 basis points, may be on the cards over the course of the year, which could support the dollar’s short-term value,” he concluded. (br/lt)
