As expected by the market, the Federal Reserve froze interest rates for the eighth time. Chairman Powell said at the press conference after the meeting that a rate cut in September has become an option on the table for discussion. The ADP employment report, known as the "small non-farm", also fell for the fourth consecutive month, reaching a new low in nearly 6 months.
The Federal Reserve (Fed) ended its FOMC meeting this morning, freezing interest rates for the eighth time at 5.25%-5.5% as expected by the market. However, Chairman Jerome Powell sent a dovish signal at the press conference after the meeting, suggesting that a rate cut in September is imminent, which boosted the stock and bond markets.
The September rate cut is imminent
Powell said at the press conference that they are confident that inflation is continuing to move toward 2%, revealing that a rate cut in September has become an option on the table. However, he still has some reservations, pointing out that the following three conditions need to be met continuously:
Inflation fell as expected
Economic growth remains at a reasonable level
The labor market remains in its current state
However, according to the FedWatch tool of the Chicago Mercantile Exchange (CME), market investors currently predict that the probability of the Fed cutting interest rates in September has reached 100%: the probability of a one-point rate cut is 86.5%, and the probability of a two-point rate cut is 13.5%.
However, Powell seemed to rule out the possibility of the Fed cutting interest rates by 50 basis points at a time. He said: "I don't want to be specific about what actions we are going to take, but this is not something we are considering right now."
In July, small non-farm employment increased by 122,000, a six-month low
At the press conference, Powell also mentioned that the Federal Reserve's policy is currently facing dual risks and cannot continue to focus only on inflation.
The labor market appears to be fully balanced, and any rate cut too early or too late would undermine the Fed's dual mandate of maximum employment and price stability.
As for the latest data on the labor market, the U.S. human resources management company ADP released the ADP employment report, also known as the "small non-farm" report, last night, showing that the number of private enterprise employees increased by 122,000 in July after seasonal adjustment, falling for the fourth consecutive month, the lowest level in nearly six months, lower than the 147,000 expected by economists and lower than the 155,000 in June after the upward revision.
ADP Chief Economist Nela Richardson said:
With wage growth slowing, the labor market is cooperating with the Fed's efforts to slow inflation. If inflation picks up, it won't be because of labor problems.
All four major U.S. stock indexes rose
Encouraged by Powell's dovish comments and continued slowing employment data, the four major U.S. stock indexes all closed higher:
The Dow Jones Industrial Average rose 99.46 points, or 0.24%, to 40,842.79.
The S&P 500 rose 85.86 points, or 1.58%, to 5,522.30.
The Nasdaq Composite Index rose 451.98 points, or 2.64%, to close at 17,599.40.
The Philadelphia Semiconductor Index rose 343.03 points, or 7.01%, to close at 5233.18 points.
