Little hope for interest rate cuts: Growing US industry is weighing on Wall Street

Little hope for interest rate cuts
Growing US industry weighs on Wall Street

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There is currently decreasing hope among US stock market investors that the Fed will cut the key interest rate. The main reason is unexpected growth in the domestic industry. This could lead to increased inflationary pressure.

Dwindling hopes that the US Federal Reserve will soon cut interest rates weighed on the US stock markets on Monday. It closed on Wall Street Dow Jones Index the US standard values ​​were 0.7 percent lower 39,539 points. The broad one S&P 500 lost 0.3 percent Hiring 5,239 positions. The technology-heavy one Nasdaq was barely changed at 16,371 points.

According to stockbrokers, unexpected growth in US industry dampened expectations that the Fed would soon significantly reduce interest rates. The purchasing managers’ index rose by 2.5 points to 50.3 points in March, as the Institute for Supply Management (ISM) announced. This means that for the first time since September 2022, the barometer, which is closely followed on the financial markets, is above the 50 mark, above which it indicates growth. “The fact that the ISM manufacturing index rose into the growth zone surprised everyone,” said economist James Knightley from major bank ING. This increases inflationary pressure, which could prevent the Fed from cutting interest rates.

On Good Friday – when the stock markets were closed – US Federal Reserve Chairman Jerome Powell welcomed the new inflation data. They are “more in line with what we want to see,” said Powell in San Francisco. One measure of inflation that the Fed pays particular attention to in its interest rate policy is consumer personal spending, which excludes volatile food and energy costs. This so-called PCE core index fell to an annual inflation rate of 2.8 percent in February, after 2.9 percent in January.

After some aggressive interest rate increases in the fight against high inflation, the central bank recently paused several times and kept its key interest rate constant in the range of 5.25 to 5.50 percent. The financial markets have prepared for a turnaround in interest rates in June. Premature rate cuts are weighing on the economy, Powell said. But waiting too long could also cause unnecessary damage, for example to the labor market.

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