The three major New York stock market indices all closed lower. Major economic indicators such as personal consumption expenditures (PCE) for October and preliminary gross domestic product (GDP) for the third quarter, announced ahead of the Thanksgiving holiday, confirmed that the U.S. economy was solid, leading to interpretations that the interest rate cut may be delayed. This is interpreted as being because of this.
On the 27th (local time), the Dow Jones Industrial Average closed at 44,722.06, down 138.25 points (-0.31%) from the previous day. The Standard & Poor’s (S&P) 500 index fell 22.89 points (-0.38%) to 5998.74, and the Nasdaq index also fell 115.10 points (0.60%), closing trading at 19,060.48.
On this day (the 27th, local time), economic indicators poured into the market ahead of the Thanksgiving holiday. In particular, the announcement of indicators favored by the Federal Reserve System (Fed), such as the PCE indicator and US GDP, continued.
The US inflation rate in October was in line with expectations.
The U.S. Department of Commerce announced that PCE in October rose 0.2% compared to the previous month and 2.3% compared to the same period last year. It is in line with all market expectations and is a 0.2% increase from last September (2.1%).
Core PCE, excluding highly volatile food and energy, rose 0.3% compared to the previous month and 2.8% compared to the same period last year, which was consistent with expectations. However, the year-on-year increase slightly jumped compared to last September (2.7%), reaching the highest level in six months.
What led the rise in PCE was service prices. Core service prices, excluding housing and energy, rose 0.4% compared to the previous month. This is the highest in seven months since last March, and commodity prices fell 0.1%. Food was little changed and energy fell 0.1%.
The U.S. third quarter GDP also showed that the U.S. economy was solid.
The U.S. Department of Commerce announced that preliminary real GDP for the third quarter rose 2.8%. Although it was lower than the growth rate of the second quarter of last year (3.0%), it was consistent with both the previously announced GDP estimate and market forecast (2.8% each).
The United States’ GDP growth rate has exceeded 2% in eight of the past nine quarters, demonstrating a strong economic situation. The main driver of U.S. economic growth was, of course, strong consumer spending. Consumer spending increased 3.5% in the third quarter compared to the previous quarter, reaching the highest level this year.
Labor indicators were also good.
According to the U.S. Department of Labor, the number of new unemployment claims last week was 213,000, down 2,000 from the previous week’s revised figure. This is the lowest number in seven months since last April, and is 2,000 cases lower than experts’ expectations (215,000 cases).
While the U.S. Federal Reserve announced its cautious monetary easing stance through the minutes of the Federal Open Market Committee (FOMC), analysts say that the rate of interest rate cuts may be adjusted as the slowdown in inflation rates is slowing and solid economic growth is being achieved.
The market is weighing the prospect that interest rates will be cut until next month (December) and then the pace of cuts will be adjusted starting next year.
According to FedWatch of the Chicago Mercantile Exchange (CME), the interest rate futures market currently has a 69.0% probability that the Federal Reserve will cut the benchmark interest rate by 0.25% at the Federal Open Market Committee (FOMC) in December, and a 31.0% probability that the interest rate will be frozen. The cumulative probability of a 0.5% point reduction in the base interest rate as of January next year was 15.3%.
Bond interest rates fell.
On this day, the 10-year maturity government bond interest rate and 30-year maturity government bond interest rate were moving around 4.256% and 4.439%, respectively, and the 2-year maturity government bond interest rate fell to the 4.225% level.
Large technology stocks such as Apple (-0.06%), MSFT (-1.17%), Amazon (-1.02%), Meta (-0.76%), Alphabet (0.07%), and Tesla (-1.58%) showed overall weakness.
NVIDIA (-1.15%), which had rebounded the previous day, also fell. AI-related stocks continued to decline, including AMD (-1.07%), Qualcomm (-0.34%), Broadcom (-3.08%), Micron (-3.54%), ASML (-0.22%), and TSMC (-1.44%). .
International oil prices continued to fluctuate in a flat range. The price of West Texas Intermediate (WTI) crude oil on the New York Mercantile Exchange is trading at $68.73 per barrel, down -0.06% from the previous trading day.
Meanwhile, the New York Stock Exchange will be closed a day later, on the 28th, in observance of Thanksgiving, a federal holiday, and will close early at 1 p.m. on the 29th.
**How might the Fed’s interpretation of the robust Personal Consumption Expenditures (PCE) data influence its approach to future rate cuts?**
## Interview: US Economic Strength Raises Questions About Future Rate Cuts
**World Today News:** Thanks for joining us, Dr. Miller. Today’s economic indicators have sent shockwaves through the stock market. Can you walk us through what happened and what it means for investors?
**Dr. Miller (Economics Professor, Columbia University):** Certainly. Today, a confluence of data, released before the Thanksgiving holiday, painted a picture of a surprisingly robust US economy. Personal Consumption Expenditures (PCE), the Fed’s preferred inflation gauge, ticked up slightly, especially in core services. Meanwhile, third-quarter GDP growth exceeded initial estimates, solidifying the narrative of a steady economic expansion.
**World Today News:** This strong economic performance seems to have spooked investors, leading to declines across all major indices. Why is that?
**Dr. Miller:** The fear stems from the implication these figures have for future interest rate decisions by the Federal Reserve. While the Fed recently signaled a cautious easing stance, today’s data suggests the economy might be overheating.
Strong consumer spending, coupled with persistent inflation in the service sector, might prompt the Fed to reconsider the pace and depth of rate cuts, potentially delaying them or even opting for smaller reductions than anticipated.
**World Today News:** What does this mean for the average American?
**Dr. Miller:** For consumers, the picture is mixed. Continued economic growth is generally positive, potentially leading to more job opportunities and wage increases. However, persistently high inflation erodes purchasing power and could dampen consumer confidence in the long run. Higher interest rates also make borrowing more expensive, potentially impacting mortgage rates and consumer loans.
**World Today News:** Looking forward, what are the key factors investors and policymakers should be watching?
**Dr. Miller:** The upcoming FOMC meeting in December will be crucial. While a small rate cut is still widely expected, the tone and language from the Fed will be carefully scrutinized for clues about their future policy path. Additionally, upcoming inflation data and employment reports will provide further insights into the health of the economy and potentially shift market sentiment.
**World Today News:** Thank you for shedding light on this complex situation, Dr. Miller.
**Dr. Miller:** My pleasure.
**Stay tuned to World Today News for ongoing coverage of these developments and their impact on the global economy.**
