Nasdaq Reaches Record High on Fed Rate Cut Expectations
US stock indexes rallied, buoyed by recent inflation data which has increased the likelihood that the Federal Reserve will cut interest rates at its meeting next week. The Nasdaq Composite Index soared to a new record high as traders reacted positively to the data, believing it paves the way for more economic support from the Fed.
Mild Inflation Data Supports Rate Cut Outlook
Inflation in the United States saw a modest increase in November, driven by higher prices for used cars, hotel rooms, and groceries. The consumer price index (CPI) rose by 2.7% year-over-year, up from 2.6% in October. Meanwhile, core inflation, which excludes food and energy costs, held steady at 3.3%. On a month-to-month basis, prices climbed 0.3% from October to November, marking the largest increase since April, with core prices also rising by 0.3% for the fourth consecutive month.
These inflation numbers, though slightly higher than expected, are unlikely to deter the Federal Reserve from proceeding with a quarter-point rate cut. CME FedWatch now reports that the probability of a rate cut next week has surged to 98%, reinforcing Wall Street’s expectations.
Federal Reserve Positioned for Rate Cut Despite Inflation Pressure
The inflation figures come as the Federal Reserve prepares to meet next week to set its monetary policy. In a recent statement, Fed Chair Jerome Powell indicated that while inflation is not yet fully under control, the overall economy is in a good position for gradual rate reductions. The cooling job market and a slower pace of wage growth—down from nearly 6% in 2022 to around 4% now—align more closely with the Fed’s 2% inflation target.
Following substantial rate cuts earlier this year, including a half-point reduction in September and a quarter-point cut in November, the central bank’s key interest rate stands at 4.6%, down from a 40-year high of 5.3%.
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