The Federal Reserve’s meeting minutes signal a potential rate cut in September! All three major U.S. stock indices closed higher.
Release time:
2024-08-22
On August 21, 2024, all three major U.S. stock indices closed higher, with U.S. non-farm payroll data being significantly revised downward and the release of the Federal Reserve’s July meeting minutes, reinforcing expectations of a rate cut in September.
The meeting minutes released by the Federal Reserve on the same day showed that officials strongly favored a rate cut at the September policy meeting, with some even willing to cut rates immediately.
The minutes of the Federal Reserve’s meeting indicated that a rate cut could begin in September. According to CCTV news, on August 21, the Federal Reserve released the minutes of the Federal Open Market Committee (FOMC) meeting held on July 30-31. The minutes showed that the Fed decided to slow down its rate hikes in July, keeping the federal funds rate target range at 5.25% to 5.50%. Some participants believed there were reasons to cut rates in July, but “the vast majority” of officials thought a rate cut in September would be more appropriate. According to the meeting minutes, participants believed the risks of inflation had decreased, with almost all members expecting inflation to continue to fall. Additionally, the risk of a downturn in employment was seen as rising. Participants noted that delaying or reducing policy easing could excessively weaken economic activity or employment.
Based on the predictions in the meeting minutes, the Federal Reserve is expected to cut rates for the first time in September, with at least one more rate cut later this year and further easing of monetary policy in the coming year. Participants agreed that U.S. economic activity continued to grow steadily, although employment growth had slowed, the unemployment rate had risen but remained low, and inflation had eased over the past year, although still high. They also noted that the U.S. had made some progress in achieving the 2% inflation target in recent months, and the risks associated with achieving both employment and inflation goals had become more balanced, though economic prospects remained uncertain.
Downward Revision of Non-Farm Payroll Data
Earlier the same day, the U.S. Bureau of Labor Statistics reported that the preliminary estimate of the annual benchmark revision showed a downward revision of 818,000 non-farm jobs from April 2023 to March 2024. As part of the preliminary annual benchmark adjustment of non-farm payroll data, the Bureau of Labor Statistics stated that actual job growth from April 2023 to March 2024 was nearly 30% lower than the initially reported 2.9 million. The initial benchmark revision indicated that the non-farm payroll data might be revised downward by 818,000, which translates to about 68,000 fewer jobs per month. The specific monthly revisions will be officially published in February 2025. Economists had generally expected a downward revision, with some even predicting a reduction of up to 1 million jobs.
Some economists believe the initial non-farm payroll data may have been overstated due to various factors, including adjustments for business openings and closures and the inclusion of unauthorized immigrant workers. The revised data showed that actual job growth in the U.S. economy was much weaker than initially reported. This revision could alter expectations for economic growth. The job market has long been a key indicator of economic health. If job growth is weaker than expected, it may indicate an increased risk of economic slowdown.
Although non-farm data is revised annually, this year’s adjustment has attracted close attention from the market and Federal Reserve observers. The Federal Reserve has consistently monitored job market data to determine the direction of interest rate adjustments. If the job market is not as strong as originally reported, the Fed may consider rate cuts in some cases to support economic growth.
After the revised non-farm payroll data for March was released, Nick Timiraos, a journalist known as the “Fed’s mouthpiece,” commented on social media that the data showed U.S. job growth was indeed not as strong as previously reported. He stated that, aside from the total figure, the revision to the employment level was 0.5%, the largest since 2009.
Traders increased their bets on easing before the employment data release, expecting a 100 basis point rate cut within the year.
In addition, markets are also watching closely for Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole Global Central Bank Conference on Friday, where he may provide further clues regarding the Fed’s rate decision in the September meeting.
U.S. Stock Indices All Close Higher
By the close of trading, the Dow Jones Industrial Average rose by 55.52 points, or 0.14%, to 40,890.49; the Nasdaq rose by 102.05 points, or 0.57%, to 17,918.99; and the S&P 500 Index rose by 23.73 points, or 0.42%, to 5,620.85.
All 11 sectors of the S&P 500 index closed higher, with consumer discretionary rising by 1.18%, materials up by 1.15%, information technology/technology up by 0.46%, telecommunications up by 0.17%, and energy down by 0.01%. The financial sector declined by 0.14%.
Sector-specific ETFs in U.S. stocks mostly rose, with consumer discretionary ETFs and semiconductor ETFs up by more than 1%, internet stock ETFs and utilities ETFs gaining nearly 1%, and consumer staples ETFs, global airline ETFs, technology sector ETFs, regional bank ETFs, and biotech sector ETFs all rising by at least 0.5%.
Most large tech stocks rose, with Meta gaining more than 1%, Tesla and Nvidia rising by nearly 1%, while Google fell by nearly 1%. Target’s stock price rose by more than 11% after the company reported better-than-expected Q2 results and raised its full-year profit guidance. Discount retailer TJX Cos. saw its stock price rise by 6.1% after it raised its annual profit forecast. Macy’s shares plummeted by 12.9% after the company downgraded its full-year sales forecast.
Popular Chinese stocks traded on U.S. exchanges saw broad gains, with the Nasdaq China Golden Dragon Index rising by 2.39%. Vipshop rose more than 9%, Futu Holdings, Xpeng Motors, and Li Auto all gained more than 4%, while NIO and Alibaba rose more than 3%. JD.com fell by about 4.2%, after briefly dropping more than 8% in early trading. According to a filing with the U.S. Securities and Exchange Commission (SEC), Walmart completed the sale of all its shares in JD.com, no longer holding more than 5% of the company.
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