U.S. stocks dip as Federal Reserve holds steady on interest rates

110

29th February 2024 – (New York) The U.S. stock market closed lower on Wednesday as the Federal Reserve maintained its decision to refrain from cutting U.S. interest rates in the near future.

The Dow Jones Industrial Average slipped by 23.39 points, or 0.06 percent, to 38,949.02. The S&P 500 declined by 8.42 points, or 0.17 percent, ending at 5,069.76. The Nasdaq Composite Index saw a loss of 87.56 points, or 0.55 percent, closing at 15,947.74.

Among the 11 primary sectors of the S&P 500, seven managed to end the day in positive territory. Leading the gainers were real estate and financials, which rose by 1.28 percent and 0.35 percent, respectively. On the other hand, communication services and technology were the main laggards, declining by 0.92 percent and 0.55 percent, respectively.

Data released on Wednesday indicated that the first revision of the U.S. gross domestic product (GDP) for the fourth quarter of 2023 showed a slightly lower growth rate compared to the initial report. The revised figure revealed a still-strong 3.2 percent annual pace, down from the previously reported 3.3 percent.

Inflation remained relatively subdued during the last quarter, although it was slightly revised higher compared to previous estimates. Investors will closely watch the release of the U.S. core personal consumption expenditures (PCE) price index data for January, scheduled for publication on Thursday, for further insights into the timing of potential rate cuts.

Furthermore, the Commerce Department’s advance estimate revealed that the U.S. trade deficit in goods widened by 2.6 percent to $90.2 billion in January. This report precedes the forthcoming release of the PCE price index for January, which serves as the Federal Reserve’s preferred measure of inflation.

Keith Buchanan, senior portfolio manager at GLOBALT Investments in Atlanta, noted, “Now that those earnings catalysts are behind us in the rearview mirror, there could be some softness as now the market has to get its arms around the inflation trajectory and the Federal Reserve’s reaction, whether it’s with rhetoric or a higher-for-longer policy.”

Federal Reserve Bank of New York President John Williams stated that the central bank is likely to cut its benchmark lending rate “later this year.” He further expressed his expectation of three rate cuts in 2024, considering it a reasonable starting point.

Williams’ remarks echoed the sentiments expressed by Fed Governor Michelle Bowman on Tuesday, highlighting their cautious stance on reducing U.S. interest rates due to ongoing inflation concerns.

CME Group’s FedWatch Tool currently indicates a 52.8 percent chance of at least a 25 basis points rate cut in June. Market participants will closely monitor upcoming developments and statements from the Federal Reserve for further insights into the central bank’s monetary policy decisions.