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Stock futures climbed on Friday morning as traders anticipated a crucial policy speech from Fed Chair Jerome Powell, hoping for insights into potential future rate cuts.
Futures for the Dow Jones Industrial Average rose by 85 points, or 0.21%. S&P 500 futures increased by 0.34%, and Nasdaq 100 futures advanced by 0.56%.
Powell, scheduled to speak at 10 a.m. ET from the central bank’s annual symposium in Jackson Hole, Wyoming, is expected to indicate that it may soon be appropriate for the Fed to begin lowering interest rates, though details on the scale and frequency of the cuts are likely to be sparse.
Powell’s Speech for Rate Cut Clarity as Futures Rise
“Powell is anticipated to set the stage for the Fed Chair’s first rate cut in more than four years,” said Adam Turnquist, chief technical strategist at LPL Financial. “Signs of reduced pricing pressures and slowing economic growth will likely prompt policymakers to start lowering the target rate.” Markets are currently predicting a quarter percentage point cut at the upcoming Sept. 17-18 meeting, with about a 25% chance of a half percentage point reduction, according to the CME Group’s FedWatch tool. Minutes from the July meeting revealed that a “vast majority” of members supported a rate cut in September.
On Thursday, ahead of Powell’s speech, stocks were under pressure due to a sharp rise in Treasury yields. The S&P 500 dropped 0.9%, while the tech-heavy Nasdaq Composite fell 1.7%, experiencing its worst day since August 5. The Dow lost 177 points.
Despite these declines, the Dow and S&P 500 remain slightly up for the week. However, the Nasdaq is down 0.1% for the week and is on track to record its fifth negative week out of six.
Futures Advance on Hopes of Rate Cut Signals
Traders are now expecting over 200 basis points of Fed Chair rate cuts by September 2025, with the fed funds rate hitting its terminal level just above 3.00% the following year. This outlook suggests that the Fed will undertake the most aggressive policy-easing campaign among the G7 nations. Additionally, traders are factoring in a one-in-three chance that this easing cycle could begin with a 50 basis point cut next month. Historically, such a significant initial cut by the Fed has only occurred during emergencies and crises.
The dollar has been hit hard by a sharp reassessment of U.S. interest rate expectations, but it may be premature to dismiss the greenback. Currently, the dollar is at its lowest level of the year against a basket of major and emerging market currencies, prompting the question: Can this downward trend continue?
When viewed in the context of relative interest rates, the answer is likely “no.” The extent and pace of Fed easing are now reflected in U.S. futures, which appear excessive, both on an absolute level and especially in comparison to other rates.
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