Stock market today: Dow rises 350 points after Powell says it’s “time for rate cuts”
Although Federal Reserve Chairman Jerome Powell clearly signaled that rate cuts were imminent, he managed not to spook investors. Fed funds futures traders now expect about a 1 in 3 chance of an outsized rate hike of 50 basis points, or half a percentage point, in September, compared to 1 in 4 on Thursday.
Stock prices are significantly higher and the Dow Jones Industrial Average is only about 20 points away from its record high of 41,198.08 points on July 17.
“As expected, Powell did not give any specific indication of the size of the cut, but made it clear that rates will begin to decline next month. Following Powell’s comments, the stock market rallied and the dollar weakened as his dovish tone suggested lower rates are on the horizon without causing panic,” Carl Ludwigson, managing director of Bel Air Investment Advisors, said in an emailed comment.
While investors debate the prospect of a half-percentage-point rate cut, Ludwigson said investors should not expect the Fed to take extraordinary action because Powell “understands that economic agents value a gradual approach,” which will likely lead the Fed to a series of 25 basis point cuts rather than 50 basis points.
“Interest rate cuts promote growth with a lag, while in the short term, depending on how they are implemented, they can create hesitation or fear in the economy,” he wrote. “Powell gave the market just enough restraint to support the market while avoiding the potential pitfall of stoking fear.”
