Fed Cuts Rates, Signals End to Balance Sheet Reduction
The Federal Reserve has announced a notable shift in its monetary policy, marking the conclusion of its balance sheet reduction strategy. This change coincided with the Fed’s second consecutive interest rate cut, which now places the benchmark rate between 3.75% and 4%.
Interest Rate Cut and Policy Changes
The Federal Open Market Committee (FOMC) approved the interest rate reduction with a vote of 10 to 2. The Fed plans to halt its quantitative tightening on December 1, a decision influenced by the ongoing uncertainty in the economic climate due to the government shutdown.
Recent Performance of U.S. Stock Markets
- The S&P 500 Index rose by 0.13%.
- The Dow Jones Industrial Average increased by 0.23%.
- The Nasdaq 100 climbed 0.53%.
All three indexes are currently reaching new all-time highs, supported by easing global trade tensions. President Trump’s remarks about potentially lowering tariffs on Chinese imports have bolstered investor confidence. He indicated a desire to reduce the existing 20% tariff to as low as 10% amid discussions regarding the fentanyl crisis.
Trade Agreements and Economic Indicators
Additionally, a trade deal between the U.S. and South Korea was finalized today, committing South Korea to invest $150 billion in U.S. shipbuilding, while tariff rates on South Korean goods will be capped at 15%.
In the mortgage sector, applications surged by 7.1% in the week ending October 24. This rise included a 4.5% increase in purchase applications and a 9.3% rise in refinancing applications. The average rate for a 30-year fixed mortgage also decreased to a 13-month low of 6.30%.
Trade Tensions and Upcoming Earnings Reports
As markets digest these developments, attention is turning to forthcoming earnings reports from the S&P 500. This week is critical, with 173 companies set to announce their earnings.
Among notable tech companies reporting today are Alphabet, Meta, and Microsoft. Recent data shows that 84% of those that have reported so far have exceeded earnings expectations, hinting at a potentially robust quarter.
Government Shutdown Impacts
The ongoing U.S. government shutdown has lasted five weeks, impacting market sentiment and delaying numerous economic reports. Bloomberg Economics estimates that about 640,000 federal employees will be affected, contributing to a projected rise in the unemployment rate to 4.7%.
The shutdown has halted the release of key economic metrics, including unemployment claims and retail sales figures. As financial markets remain sensitive to these developments, the resolution of trade tensions and economic indicators will continue to shape investor outlooks.
Moving forward, the Federal Reserve’s actions, alongside evolving trade agreements and domestic economic factors, will play a critical role in influencing market dynamics.
