Fed and Wall Street Disagree on Pace of Rate Cuts; Powell Speech in Focus; China Pledges More Stimulus

Fed and Wall Street Disagree on Pace of Rate Cuts; Powell Speech in Focus; China Pledges More Stimulus By Hardika Singh

Wall Street and the Federal Reserve agree the recent half-point cut in the fed-funds rate is the first in many, but they disagree on how quickly rates should decline, writes Nicholas Jasinski for Barron's.

Fed policymakers are set on continuing to lower interest rates at a slow-and-steady pace. Markets, meanwhile, appear to be betting that worsening economic conditions will force the Fed to move more quickly. The data will tell who's right.

"While the totality of the data will always be important, the burden will be on incoming labor market data to provide the Fed with greater confidence that the softening trend is stabilizing," wrote Deutsche Bank Chief U.S. Economist Matthew Luzzetti on Wednesday.

So circle two dates on the calendar in particular: Oct. 4, when the September jobs data will be released, and Nov. 1-the date of the October jobs report, during the FOMC's premeeting quiet period.

If the unemployment rate climbs above the median 4.4% year-end forecast in the FOMC's September dot plot and nonfarm payrolls growth remains around 100,000 a month or lower, another half-point cut will certainly be on the table in November, per Luzzetti. More downward revisions to the initially reported hiring sum could add to the case for accelerating rate cuts.

Markets are betting on just that. Fed-funds futures on Wednesday were pricing in about 60% odds of another half-point decrease on Nov. 7, with the balance of odds in favor of a smaller cut. Pricing implied more cuts in 2025 than the Fed's base case as well.

Investors today are awaiting to hear from Fed Chair Jerome Powell, New York Fed President John Williams, and other policy makers, who are due to speak at the U.S. Treasury Market Conference.

Top News China Politburo Pledges More Support for Economy

China's top leaders surprised markets by pledging even more support for the economy , sparking hopes that policymakers are readying the sort of fiscal stimulus analysts say is key to the country's recovery.

The Politburo, China's highest decision-making body, on Thursday said it will extend additional fiscal and monetary measures to boost the economy, according to state media Xinhua. That comes days after the central bank unveiled a raft of aggressive easing moves, underscoring a rising sense of urgency among policymakers to revive the world's second-largest economy.

Chinese property stocks soared after the country's top policymakers pledged to offer more stimulus for the sector, including further easing home-buying curbs and controlling new housing projects. (Dow Jones Newswires) Hong Kong's equity market hit a one-year high and led a surge in global stocks early Thursday, as the China-stimulus rally received further propulsion from a report Beijing was considering a $142 billion capital injection into the country's big banks. (MarketWatch) China's over $100 billion push to bolster its stock markets has stirred optimism , but begs the question of whether investors and businesses will take the bait amid lingering doubts about the economy's underlying weakness. Swiss Central Bank Delivers Third Straight Rate Cut

Switzerland's central bank on Thursday cut its key interest rate for the third straight meeting, lowering it to 1% from 1.25% , as it pivots away from worries about high inflation toward concerns about the impact of a strong currency on exporters.

U.S. Economy Fed's Rate Cut Is Jolting Small Businesses to Spend Again

Some small-business owners have begun to recalibrate their spending and investment plans in response to the Federal Reserve's decision to cut interest rates by half a percentage point.

When Will Money-Market Funds Lose Their Allure?

Investors have poured $126 billion into money-market funds since the Federal Reserve's jumbo-size interest-rate cut. That sent assets in such funds to a record $6.76 trillion as of Tuesday, based on Crane Data going back to 1998.

Congress Approves Bill Averting Govt Shutdown Before Election

The House and Senate passed a measure late Wednesday funding federal agencies until late December, voting overwhelmingly to take a politically risky government shutdown off the table until after the election.

Harris Pledges $100 Billion in Tax Credits to Boost U.S. Manufacturing

Vice President Kamala Harris vowed to bring a pragmatic approach to the U.S. economy , with a focus on manufacturing and middle-class opportunities in a Wednesday address aimed at reassuring voters about her ability to harness economic growth.

Harris Puts Government Intervention at Heart of Economic Policy

As Interest Rates Fall, Bonds Become a More Attractive Investment

As interest rates decline, some financial advisers are steering their clients toward bonds. Wall Street Journal reporter Vicky Ge Huang joins host J.R. Whalen to discuss what you should know about buying bonds and how they compare to other investments.

Listen Now Forward Guidance Thursday (all times ET)

8:30 a.m.: Initial jobless claims; durable-goods orders; GDP (third estimate)

9:15 a.m.: Fed Bank of Boston President Susan Collins fireside chat with Fed governor Adriana Kugler; Fed governor Michelle Bowman speaks at the Mid-size Bank Coalition of America Board of Directors Workshop

10:00 a.m.: Pending home sales

10:30 a.m.: Fed governor Lisa Cook speaks at the roundtable discussion with community stakeholder in Columbus, Ohio

1:00 p.m.: Fed Bank of Minneapolis President Neel Kashkari hosts fireside chat with Fed Vice Chair Michael Barr

Friday

8:30 a.m.: Personal consumption expenditures index

8:30 a.m.: Advanced U.S. trade balance in goods

10:00 a.m.: Consumer sentiment (final)

1:15 p.m.: Fed governor Michelle Bowman speaks at Alabama Bankers Association Bank CEO Meeting

Commentary The High-Stakes Spat Over How Much Oil the World Really Needs

What's 1.1 million barrels between adversaries?

The Organization of the Petroleum Exporting Countries and the International Energy Agency don't see eye to eye on much, writes Carol Ryan for The Wall Street Journal.

The latter was basically founded as an anti-OPEC 50 years ago to represent energy consumers a year after that cartel's oil embargo quadrupled global crude prices. But now the gulf between their forecasts of how much oil the world will need in 2024 is oddly wide, especially for this late in the year.

The IEA thinks an additional 900,000 barrels of oil a day will be needed by consumers in 2024. OPEC is far more bullish and expects two million extra barrels will be required.

It isn't unusual for there to be a gap between the two organizations' annual demand estimates when they are first released. But as economic data rolls in throughout the year, their forecasts have tended to converge as one side or the other concedes it has been too optimistic or pessimistic.

Other than modest adjustments, that hasn't happened in 2024. Stripping out 2020 to 2022, when pandemic lockdowns made it especially hard to forecast oil demand, the two organizations' estimates have never been more than 350,000 barrels apart by September any year since 2010.

The main sticking point seems to be how demand will evolve in China over the next three months. OPEC thinks China will need 650,000 extra barrels a day in 2024, while the IEA has penciled in less than a third as much. The country consumed 315,000 additional barrels in the first half of the year, but demand has been shrinking year-over-year for four consecutive months. This suggests it would take an extraordinary economic boom for the last few months of the year to hit OPEC's punchy target. Read more .

Research Euro Faces Hit From Prospect of Accelerated Rate Cuts

The euro could fall if the European Central Bank accelerates interest-rate cuts as eurozone economic fundamentals deteriorate, HSBC says in a note. "Our economists now expect an accelerated pace of easing with a 25 basis points interest rate cut at the October 17 meeting, followed by a further 25 basis points at every subsequent meeting until April 2025 when the key deposit rate reaches 2.25%," HSBC forex strategist Nick Andrews says. Previously, HSBC expected 25-basis-point cuts at every other meeting to 2.5% in September 2025, he says. The revised forecast follows worsening eurozone purchasing managers' surveys and German Ifo data this week, and signals from ECB officials hinting at faster rate cuts, he says. - Renae Dyer

Basis Points Sales of newly built homes in the U.S. fell 4.7% to an annual rate of 716,000 in August, from a revised 751,000 in the prior month, the Commerce Department reported Wednesday. The pace of sales was still at the highest level since April. (MarketWatch) Hurricane Helene is barreling toward the Florida Panhandle, where it is expected to make landfall as a Category 4 hurricane , bringing life-threatening storm surges up to 20 feet. The consumer mood in Germany improved slightly this month , but the still-subdued level, declining economic expectations and data showing the economy continues to slow don't signal a recovery. U.K. car manufacturing fell sharply in August as companies continued to retool their factories for new electric models, in line with forecasts for a global slowdown in auto production this year. Compared with other luxury housing markets in Europe, buyers get more bang for their buck in Italy's capital. More than 100 miles off the coast of Guyana, Exxon Mobil is pumping hundreds of thousands of barrels every day from a gargantuan oil discovery that is transforming the South American country. Back onshore, much of the transformation is being undertaken by China . Economies in North Africa and the Eastern Mediterranean will grow more slowly than expected this year as a series of droughts adds to the damage caused by the conflicts in Gaza and Lebanon, the European Bank for Reconstruction and Development said Thursday. About Us

(MORE TO FOLLOW) Dow Jones Newswires

September 26, 2024 07:15 ET (11:15 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.