Dow Jones rises as Fed opens door to rate cuts

VaselineAugust 23, 2024

0 3 minutes read

Dow Jones rises as Fed opens door to rate cuts

The Dow rose to 41,200.00 after Fed officials agreed it was time to cut rates.
Stocks immediately moved to guess how many rate cuts in 2024.
Rate markets are seeing 100 bps cuts by the end of 2024.

The Dow Jones Industrial Average (DJIA) rose more than 350 points on Friday after the Federal Reserve (Fed) gave its nod to future interest rate cuts. Several Fed policymakers appeared before markets to signal a long-awaited policy shift, for which markets have rallied since at least last December, when investors initially pegged six rate cuts of more than 200 bps to end of 2024. .

Read more: Jerome Powell repeats timing and pace of rate cuts will depend on data

Fast forward to the end of August and traders are now faced with whether or not the September Fed rate request will be 25 or 50 bps. According to CME’s FedWatch tool, rate markets are pricing in a roughly three-to-one chance of a double cut on Sept. 18, with the rest of the board still committed to a quarter-point cut. Bets on a 50 bps opening rate cut in September rose after Fed Chairman Jerome Powell, while speaking at the Jackson Hole Economic Symposium on Friday, openly acknowledged that the time had finally come for the central bank to US to start cutting benchmark rates.

Dow Jones News

Despite a broad pivot in market sentiment on Friday, about a third of the Dow Jones is still facing the downside. Procter & Gamble Co. ( PG ) fell about 1% to $168.41 a share after it was revealed that COO Shailesh Jejurikar sold nearly a third of his stake in the company. On the bullish side of the board, Dow Inc. ( DOW ) rose 2% to $53.62.

Dow Jones Price Forecast

The Dow Jones managed to hit 41,200.00 for the first time since late July amid a broad rally in stocks. As the index continues to test higher ground, the DJIA is poised to challenge all-time highs again at 41,371.38 set in mid-July.

Despite a bullish firm stance, bidders risk running out of momentum as price action is supported by the upside. The Dow Jones continues to trade well above its 200-day EMA at 38,187.93, and a short-term pullback will see the Dow Jones slide back into the 50-day EMA topping 40,000.00 of major prices.

Read more Dow Jones news: Intel falls 6% as investment in German factories becomes less certain

Dow Jones Daily Chart

Fed FAQ

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to ensure price stability and to promote full employment. Its main tool for achieving these objectives is the adjustment of interest rates. When prices rise too quickly and inflation is above the Fed’s 2 percent target, it raises interest rates, raising borrowing costs throughout the economy. This results in a stronger US dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates to encourage borrowing, which hurts the greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. Twelve Fed officials participate in the FOMC—the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve rotating one-year terms. .

In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy higher quality bonds from financial institutions. QE usually weakens the US dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of bonds it holds at maturity to buy new bonds. It is usually positive for the value of the US dollar.

VaselineAugust 23, 2024

0 3 minutes read