Rate Cut Rhetoric Blunts US Stock Market Performance

Analysts' speculation regarding the central bank policy within the United States has been very much based on sentiment over the past few months.

A few months ago, a quick glance at the mainstream financial headlines would have been enough to ensure a clear view that 2024 would be a year of reducing interest rates, and commentators and analysts had even made predictions regarding actual times during the year at which rate cuts would take place.

These predictions were scuppered in February when minutes from the Federal Open Markets Committee (FOMC) meeting at the end of January stated that the Federal Reserve Bank would not be reducing interest rates in the early part of this year and was sticking firmly to its conservative policy of working toward a sustainable 2% inflation rate.

That dialogue has resurfaced this morning, this time as a result of the Federal Reserve having maintained its forecast for lowering interest rates three times this year despite not having done so in the first quarter as was expected by so many pundits, but this time, the talk is more focused on whether these will actually go ahead at all.

In Minneapolis, Minnesota, the state Federal Reserve president Neel Kashari commented that the central bank might look to keep interest rates at their current level for the remainder of the year if inflation progress stalls, an interesting remark at the beginning of earnings season for many large publicly listed North American companies.

Some asset managers have written to their clients and advised that they hold the view that the Federal Reserve will not reduce interest rates this year. What will actually happen is still very much open to speculation until any decision is announced by the central bank.

On this point, stock markets across the United States remained flat as US equities concluded yesterday's New York trading session nearly flat, as investors embarked on a significant week poised to include the latest inflation figures, which could influence expectations for interest rate cuts, and the commencement of the earnings season for the first quarter.

Despite the recent tech stock boom, NASDAQ's Tech 100 stocks are relatively flat, having concluded yesterday's trading session at 18,116.1 points according to FXOpen pricing, a far cry from the 18,414.7 reached on the last day of March.

The S&P500 is also on the back foot, yesterday's New York session having seen the index tail off to 5,206.4 at the end of the trading day according to FXOpen pricing, which represents a considerable slump from 5,283.5 points at the end of March.

As earnings season begins and the market participants await the fiscal results for many large corporations, the stock markets hang in the balance, as Federal Reserve policy could affect future corporate performance. Keeping interest at the same rate means companies have to continue to tie up capital paying monthly commitments, whereas reducing interest rates would mean less capital needed to pay monthly commitments and more available capital for commercial growth or to keep as profit.

Interesting times lie ahead as speculation grows without a clear indication of any change in monetary policy.