Hot Features
Premium
Register for Free to get streaming real-time quotes, interactive charts, live options flow, and more.
One of last week’s key events took place towards the end: I’m referring, of course, to Jerome Powell’s speech on monetary policy in Dallas.
His comments that the economy is not showing signs that the Fed needs to rush to cut rates despite the cooling labor market really caught the market’s attention.
Most interpreted this as a sign that at the next meeting in December, FOMC members will likely vote for a pause rather than another 25 basis point cut, as was the baseline scenario.
As a result, pessimism shook the market, and the S&P 500 lost more than a third of its post-election gains. The DJI and Nasdaq also came under pressure, unlike the dollar index and U.S. Treasury yields.
However, it should be noted that the risk-averse sentiment was not universal. The cryptocurrency market continued to post gains, with Bitcoin price holding above $89,000, based on expectations of a bright future.
Traders, in particular, are hopeful that Trump’s return may signal a sharp change in the relationship between regulators, particularly the SEC, and the industry, hopefully in a positive direction.
Are there reasons for the Fed to take a pause sooner?
The fact that October CPI rose 2.6% from 2.4% in September, along with 0.4% month-on-month growth in US retail sales (down from 0.8% in September), gives the Fed room to make that decision.
Ultimately, the decision to pause will depend on incoming data and expectations about how Trump’s new economic and geopolitical policies could affect inflation and global GDP.
Estimates from the Yale Budget Lab suggest that renewed trade wars with the rest of the world could push consumer prices by 5.1%, meaning his presidency is expected to be pro-inflationary.
Not even the increased oil and gas production, deregulation, and resolution of geopolitical crises that he promised during the campaign will likely offset the negative impact of the tariff hike.
Whether Friday’s correction could continue this week depends largely on Nvidia’s results, which will be released on Wednesday after the bell. If the numbers disappoint, it could trigger a domino effect.
