"The main driver came from the market's reception of the Federal Reserve's decision early this morning: cutting interest rates by 25 basis points, bringing the federal funds rate down to 4.25% from 4.50%. This move had been widely anticipated by the market, but the accompanying message is what sets the tone for the next trend in U.S. equities. In its statement, the Fed acknowledged that inflation still shows "persistent" signs as August CPI rose 0.4% m/m (versus the forecast of 0.3%) and CPI y/y stood at 2.9% (up from 2.7%)."
"However, signs of cooling on the production side, with PPI falling 0.1% m/m, together with Michigan consumer sentiment plunging to 55.4, gave the Fed more room to initiate an easing cycle. Even so, Chair Powell emphasized during the press conference that the Fed remains "data-dependent" and will assess the pace of cuts based on core inflation and labour market data, rather than committing to an aggressive rate-cutting path immediately."
"For the Dow Jones, the rate cut decision brought multiple positive effects. Lower capital costs provide support to sensitive sectors such as industrials, financials, and consumer staples. Meanwhile, technology and communication services (though not as heavily weighted as in the S&P 500) still created a spill over effect on sentiment, driving broader buying momentum. The Dow's rebound was also reinforced by solid Retail Sales data, with the core measure up 0.7% m/m, reflecting resilient household spending that supports revenues for many of the index's constituents."
Dow Jones closed up 0.57%, recovering after recent volatility. The Federal Reserve cut the federal funds rate by 25 basis points to 4.25%, while noting persistent inflation as August CPI rose 0.4% m/m and 2.9% y/y. PPI declined 0.1% m/m and Michigan consumer sentiment fell to 55.4, giving the Fed room to begin easing. Chair Powell said the Fed remains data-dependent and will tailor cuts to core inflation and labour market trends. The rate cut supported industrials, financials and consumer staples, with retail sales showing a 0.7% core increase, yet manufacturing indices remain weak.
Read at London Business News | Londonlovesbusiness.com
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