Why Fed's Rate-cut Could Keep Inflation Higher For Longer?

Barry Adams
18 Sep, 2024
New York City

Stock market indexes traded in a tight range, and the yield on 10-year Treasury notes edged higher ahead of the Fed's rate decisions later today. 

The S&P 500 index and the Nasdaq Composite edged slightly lower in early trading as investors awaited the Fed's monetary policy decisions and economic projections at the end of its 2-day meeting. 

The Federal Reserve is set to announce its decisions at 2:00 p.m. ET, and investors are widely anticipating a rate cut of at least 25 basis points. 

Despite the widespread enthusiasm for a possible rate cut, inflation is still strong and deeply entrenched in the economy. 

Moreover, the Fed's eleven rate cuts over the last two years have moderated the inflation, thanks largely to the decline in crude oil prices. 

Overall inflation is driven by the increases in prices in fuel, goods, services, and housing. 

The Fed's rate-increase campaign has failed to stop the ongoing rise in home prices and elevated service inflation. 

The overall inflation has moderated largely because of the decline in prices of crude oil, and more production has shifted to Asia to take advantage of cheaper labor and operating costs. 

The Fed's rate hikes have little influence on the goods and fuel economy, which are largely driven by demand and supply forces and technological advances. 

The U.S. inflation is likely to stay elevated because of the surge in money supply by the Federal Reserve during the pandemic era, and policymakers are still reluctant to withdraw the outsized stimulus.

 

U.S. Indexes and Treasury Yields

The S&P 500 index decreased 0.03% to 5,633.31, the Nasdaq Composite rose 0.1% to 17,646.66, and the Russell 2000 index advanced 0.2% to 2,209.49. 

The yield on 2-year Treasury notes edged higher to 3.64%, 10-year Treasury notes inched up to 3.68%, and 30-year Treasury bonds inched lower to 3.99%.

WTI crude oil decreased $0.65 to $70.54 a barrel, and natural gas prices edged up 4 cents to $2.36 a thermal unit.

Gold fell by $0.79 to $2,574.91 an ounce, and silver increased by $0.11 to $30.59.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher to 100.85.

 

U.S. Stock Movers

Casella Waste Systems declined 4.5% to $101.50 after the recycling company announced its plans to raise $400 million in an equity offering of Class A common stock. 

General Mills declined 0.8% to $73.90 after the food product maker reported that higher input costs negatively impacted its margins. 

Net revenue in the fiscal first quarter ending on August 25 decreased 1% to $4.8 billion from $4.9 billion, net income dropped 14% to $579.9 million from $673.5 million, and diluted earnings per share fell 10% to $1.03 from $1.14 a year ago.

The company reaffirmed its fiscal year estimates and said adjusted diluted earnings per share are expected to range between a decrease of 2% and flat in constant currency. 

Intuitive Machines soared 47% to $7.91 after the company was awarded a contract by NASA that could be worth up to $4.8 billion.