Wall Street celebrated a significant rate cut from the Federal Reserve but couldn’t maintain a rally as concerns over economic weakness persisted. The Fed’s decision on Wednesday to reduce its key overnight lending rate by half a percentage point deviated from typical initial cuts in easing cycles and surprised many following recent consensus expectations. Despite an initial uptick, stocks struggled to advance, with investors interpreting the larger cut as a signal of deeper economic troubles ahead, even as inflation seemed on course to hit the Fed’s 2% target.
Many market analysts criticized the Fed for being overly aggressive. Ryan Sweet, Chief U.S. Economist at Oxford Economics, remarked that the half-point cut points to growing concerns about slowing growth among Fed policymakers. According to Sweet, the Fed’s attention is shifting from inflation to the labor market, suggesting that the dual mandate is increasingly focused on employment as the job market shows signs of softening. Sweet highlighted that the rise in unemployment is tied to increased labor supply from immigration, and the Fed is worried about weakening labor demand exacerbating job market stresses.
Nancy Tengler, CEO and Chief Investment Officer at Laffer Tengler Investments, argued that the Fed “jumped the gun” with its half-point cut, pointing out that unemployment may rise but actual layoffs remain low, with job openings still high compared to pre-pandemic levels. Tengler criticized the Fed’s reliance on what she termed “backward-looking data” for driving its decision.
Scott Helfstein, Head of Investment Strategy at Global X, echoed this sentiment, noting that recent economic data doesn’t justify a larger cut, although he acknowledged that such a cut could support risk assets. Helfstein believes the move wasn’t necessary initially but may encourage a risk-on asset allocation.
Contributors: CNBC’s Jeff Cox and Michelle Fox.
Original Story https://www.cnbc.com/2024/09/18/traders-got-their-big-rate-cut-wish-and-markets-still-couldnt-rally.html
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