Amid the backdrop of a weakening employment landscape, the Fed cut interest rates by 25 basis points on Wednesday. It was the first cut this year, but it is not expected to be the last with two or three more cuts possible by the end of 2025. According to the Fed, the shaky job market is the top priority even though it acknowledged that inflation was still stubbornly high.
The PCE Index came in at close to 3 percent in August, which was about 1 percent higher than the Fed’s target. However, as it has a dual mandate to maintain both price and employment stability, members felt as if there was no choice but to ease now. Currently, the Fed Funds Rate is in a range between 4 percent and 4.25 percent, which is still the highest among major economies.
The decision to lower rates was not the only important news that came out this week. On Tuesday, retail sales figures were released, and both core and overall retail sales figures beat expectations. Core retail sales were up 0.7 percent this month compared to an expected increase of 0.4 percent. Meanwhile, overall retail sales were up 0.6 percent compared to an expected increase of 0.2 percent.
On Thursday, unemployment claims data for the week came in and revealed that 231,000 people requested benefits over the last seven days. Analysts thought that 241,000 claims had been filed over the last week. However, this figure was still down by more than 30,000 compared to the previous week’s report.
The S&P 500 continued its rally that began in April as it was up another 55 points this week. At the close of trading Friday, the index stood at 6,664, which was a gain of .84 percent for the week. On Wednesday, the market made its weekly low of 6,584 before reversing and closing at the high of the week.
As with the S&P, the Dow also made gains this week. The market closed up 484 points to finish at 46,315, which was a gain of 1.06 percent over the last five days. On Tuesday, the market made its weekly low of 45,680 before reversing and also closing at the high of the week.
Finally, the Nasdaq closed up 1.87 percent for the week finishing at 24,626. This represented a gain of 451 points over the last five trading days. On Wednesday afternoon, the index made its weekly low of 24,075 just minutes before the Fed decision came out.
In international news, several other central banks made interest rate decisions including the Bank of Canada (BOC), the Bank of England (BOE) and the Bank of Japan (BOJ). The BOC opted to trim the country’s key rate by 25 basis points from 3 percent to 2.75 percent. Meanwhile, the BOE opted to keep the nation’s interest rate steady at 4 percent. Finally, the BOJ opted to also keep the status quo and kept rates steady at 0.5 percent.
On Tuesday night, New Zealand announced that its gross domestic product dropped 0.9 percent over the past quarter. Australia noted that its economy lost 5,400 jobs over the past month compared to an expected gain of 21,200. The data implies that a global economic slowdown may be on the horizon.
As expected, gold is continuing its bull run that began almost a year ago. It is currently sitting at about $3,700 per ounce, which is easily an all-time high. Silver and other metals have also been on a bull run recently, which may make them attractive to those who are looking to diversify their portfolios.
The upcoming week will certainly be another interesting one.. On Tuesday, the Flash Manufacturing and Flash Services PMI reports come out while Jerome Powell will deliver a speech in Rhode Island. The final GDP numbers for the last three months will come out on Thursday while the Core PCE Price Index for August comes out on Friday.