Forexlive Americas FX news wrap 30 Sep:Fed Powell indicates there should be 2 cuts in 2024

• US equity close: A surge in buying late
• Markets stop panicking when central bank start panicking
• How major market indexes performed in the third quarter
• WTI crude oil futures settled $68.17
• USD moving higher as Powell taps the brakes on cuts
• Powell Q&A: A downside risk in GDP was a revision to GDI, but GDI was revised higher
• Powell: Policy will move over time to neutral if economy meets forecasts
• Goldman Sachs highlights the case for an undershoot in US inflation
• Fed Goolsbee worried about the possible continued port shutdown. Case for rate cuts clear.
• Fed Pres. Bostic: Is open to another 50 bp cut if labor market shows continued weakness
• Israel defense minister: The next phase of the war will begin soon
• US believes Israel could imminently launch a more limited ground incursion in Lebanon
• China delivers on pledge to lower downpayments for homes
• Dallas Fed September manufacturing index -9.0 vs -9.7 prior
• ECB’s Lagarde: Next inflation reading likely to be below baseline
• Kickstart the FX trading day for Sept 30 w/a technical look at EURUSD, USDJPY and GBPUSD
• ECB’s Lagarde: Some survey indicators suggests the recovery is facing headwinds
• ForexLive European FX news wrap: Euro nudges up with month-end in focus
• Germany September preliminary CPI +1.6% vs +1.7% y/y expected

The new week was void of economic data with the exception of the Dallas Fed Manufacturing index which came in at -9.0 vs -.9.7 last month. However, there was some Fedspeak with Atlanta Fed Pres Bostic and Chicago Fed Pres. Goolsbee kicking things off.

Bostic expressed openness to a 50 basis point rate cut if the labor market continues to show signs of weakness. His baseline expectation, however, is for an orderly easing process as inflation slows and the job market holds steady. Despite this, Bostic remains cautious due to core inflation, as measured by the personal consumption expenditures (PCE) price index, still being at 2.7%.

Bostic emphasized the importance of closely monitoring job growth. He noted that if employment growth slows below 100,000 jobs, it would raise concerns about potential underlying issues in the labor market. Despite this, his business contacts report that they do not expect layoffs, and recent PCE data shows that disinflation remains on track.

Looking ahead, Bostic’s outlook involves gradual Fed easing over a 15-month period, with a target policy rate of 3.00%-3.25% by the end of 2025. The Fed’s dot plot looks for EOY 2025 at 3.40%. He currently supports one additional 25 basis point rate cut this year, contingent on upcoming inflation and labor market data. The Fed penciled in 50 bps additional easing by year end.

Soon after Bostic spoke, Chicago Fed President Austan Goolsbee, speaking on FOXBusiness, expressed concern about the potential continuation of a port shutdown. He noted that the Fed’s rate cuts are a response to the normalization of the economy, emphasizing that the labor market remains sustainable despite some cautionary indicators. Goolsbee highlighted that the process of easing interest rates is essential, predicting a significant number of rate cuts ahead. He also stated that inflation is approaching the Fed’s target and stressed that the case for cutting rates is clear and unrelated to political considerations.

After they had spoken, it was the Fed Chair Powells turn. He spoke and answered questions at a National Association of Business Economists meeting (NABE).

Powell indicated that monetary policy will gradually move toward a neutral stance if the economy continues to meet projections. He highlighted that the risks are balanced and that decisions will be made on a meeting-by-meeting basis.

Importantly, Powell noted that further cooling of the labor market is not necessary to achieve the Fed’s targets, as both the economy and labor market remain in solid shape. He expressed increased confidence that inflation is on a sustainable path toward 2%, with broad-based disinflation, and expects housing services inflation to continue declining as long as rent growth for new tenants remains low.

The recent 50 basis point rate cut, according to Powell, reflects confidence in maintaining labor market strength while recalibrating policy. He emphasized that the process of rate cuts will be gradual, guided by economic data, with the possibility of two more cuts by the end of the year.

Powell also pointed to an upward revision in Gross Domestic Income (GDI), which showed stronger growth than initially reported, with GDI growing at a 3.4% rate in the recent quarter. This revision suggests consumers may have more spending power, which could help sustain the economy’s strength.

The comments from Powell gave the USD a bid and sent yields higher as the market continued to backtrack on a 50 bp cut in November. The expectation for 50 bps is down to 35% from near 60% last week.

Looking at the yield curve:

• 2-year yield 3.643%, plus 8.0 basis points.
• 5 year yield 3.560%, +5.7 basis points
• 10 year yield 3.784%, +3.6 basis points
• 30 year yield 4.122%, +2.5 basis points.

US stocks did move lower as Powell spoke, but by the close, the major indices held pushed into positive territory to end the trading month.

• Dow Industrial average rose 17.15 points or 0.04% at 42330.15. At session lows, the index was down -383.93 points
• S&P index rose 24.31 points or 0.42% at 5762.48. At session lows, the index was down -34.64 points
• Nasdaq index rose 69.58 points or 0.38% at 18189.17. At session lows, the index was down at -122.03 points

The Small-cap Russell 2000 close up 5.26 points or 0.24% of 2229.97.

Mapping the strongest to the weakest of the major currencies, the NZD and the AUD is the strongest of the major currencies, while the JPY was the weakest of the major currencies.

This article was written by Greg Michalowski at www.forexlive.com.