US markets ended below the flat line on Thursday after an hotter-than-expected inflation print and a slowdown in the labor market amplified the debate on what will the Fed do next.
The S&P 500 fell 0.2%, the Dow Jones fell 0.1%, while the Nasdaq ended just below the flat line. The yield on 10-year Treasuries was little changed at 4.07%. The Bloomberg Dollar Spot Index wavered.
Consumer Price Index for September fell 0.2% on a monthly basis but the annual inflation rate of 2.4%, despite being the lowest since February 2021, was above estimates of 2.3%.
Initial Jobless Claims for the week gone by came in at 2,58,000, which was also higher than the projection of 2,30,000.
The data, along with a strong non-farm payrolls print has given rise to concerns over whether the Fed will even bother cutting rates in November, after September’s 50 bps cut.
For now, bond traders continued to bet the central bank will reduce the pace of cuts to 25 basis points in November.
According to the CME FedWatch Tool, the probability of the Fed cutting rates in September now stands at 85%.
Three Fed policymakers — John Williams, Austan Goolsbee and Thomas Barkin were unfazed by a higher-than-forecast consumer price index, suggesting officials can continue lowering rates. The outlier was Raphael Bostic of the Atlanta Fed. In an interview with the Wall Street Journal he revealed that, in projections released in September, he had called for one additional quarter-point cut this year. The Fed has two remaining meetings in 2024.
“Today’s CPI report will lower enthusiasm around rate cuts next month, and if some of these other catalysts increase uncertainty, it could act as a short-term excuse for markets to pull back — particularly with the S&P 500 at all-time highs,” said Bret Kenwell at eToro.
However, David Donabedian of CBIC Private Wealth continues to maintain that they still expect the Fed to cut by 25 basis points in November, followed by a similar cut in December.
Friday will be a data heavy day for the US markets as big banks – JPMorgan, Wells Fargo, BNY Mellon, along with the world’s largest asset manager BlackRock will be reporting results today. Along with results, the Producer Price Index data will also be released along with the Consumer Sentiment data.
(With Inputs From Agencies.)