Markets cheer prospect of Fed rate cuts

Expect more gains this week, although there are some minefields further ahead

Market Watch Ven Sreenivasan Senior Columnist With the US Federal Reserve poised to announce its first interest rate cuts in over 41/2 years, it is only a question of the magnitude of the move.

According to the CME FedWatch Tool, traders last week were still betting on a 69 per cent chance that the US central bank reduces rates by just 25 basis points (bps) when it meets on Sept 17 and 18.

The prevailing thinking is that the Fed will not rush in slashing rates aggressively, being cognisant of the risk of a resurgence in inflation akin to in the 1970s, when then Fed chairman Arthur Burns failed to keep monetary policy tight for long enough to permanently quell inflation.

If inflation continues to trend down and the US economy starts showing signs of slowing, a second cut could come in December, or so the thinking goes.

But whatever the magnitude of the likely rate cuts, stock markets are already cheering the prospect of a slide in the cost of borrowing, with Wall Street key indexes showing some of the strongest weekly performances to date in 2024.

The Dow Jones Industrial Average was up 2.6 per cent to 41,393.78 points after a 297-point rally on Sept 13.

Meanwhile, the broader S&P 500 rushed up 4.02 per cent to 5,626.02 points as major tech stocks regained some of their mojo. This was also reflected in the tech-heavy Nasdaq, which leapt 5.95 per cent last week to 17,683.98 points.

Here in Singapore, the Straits Times Index (STI) ended the week gaining 3.1 per cent to 3,562.65 points, taking its 2024 gains to date to a whopping 15.4 per cent.