The stock market experienced initial gains after the Federal Reserve cut its federal funding rate by 25 basis points but quickly reversed direction afterward. Federal Reserve President Stephen I. Milan voted against the cut as the only dissenting member. Following the decision, the S&P 500 slipped 0.1%, the Dow Jones fell 0.57%, and the NASDAQ dropped 0.33%, while the Russell 2000 gained 0.26%. Gold prices spiked to $3,704 per ounce before settling at $3,665.
In the options market, there was increased trading in put options, indicating investor uncertainty regarding potential future rate cuts. Analysts noted the Fed’s concerns about economic weaknesses and the labor market, with new job additions dropping significantly in the last month, raising the unemployment rate to 4.3%, the highest since 2021.
According to experts, the Fed’s focus may shift towards addressing labor market risks rather than solely controlling inflation. Comments from Chief Investment Officer Niladri Mukherjee suggested that the Fed is aiming for a more neutral policy stance amid increasing labor market concerns. The Fed’s updated forecasts indicated a potential for three cuts in total this year, surprising market expectations.
Overall, the environment suggests ongoing uncertainty among Fed officials about monetary policies and economic forecasts, leading to a flexible rather than a fixed strategy moving forward.
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