US markets are eager for a rate cut… Stocks are rebounding

US financial markets ignored an attempt by Jerome Powell, Chairman of the Federal Reserve (the central bank), to limit bets on lowering interest rates, as stocks and bonds rose amid speculation that the “Central Bank” will keep interest rates this December at their current levels and ease monetary policy. Next year 2024.

While Powell said on Friday that officials are ready to tighten monetary policy further whenever necessary, two-year bond yields fell 13 basis points to 4.55%, and the S&P 500 index rebounded at the end of trading, reaching its highest level since March. 2022, recording an increase for the fifth week in a row, and the dollar fell.

Traders’ bets on a rate cut rose by a quarter of a percentage point (0.25%) at the Open Market Committee meeting next March, and markets now fully expect a rate cut in May. Traders expect rate cuts of more than a full point to be approved by December 2024.

Quincy Crosby, from LPL Financial, said in statements to Bloomberg that the markets have become convinced that the Federal Reserve will begin the cycle of lowering interest rates by mid-2024, if not before.

In this context, Jose Torres, from Interactive Brokers, said that “market parties do not believe Powell,” adding: “Investors may have rejected Powell’s message in the hope that he is about to become more lenient, and this will be highlighted at the next Reserve Bank meeting.” Federal Reserve: Meanwhile, the economic data expected over the next two weeks will likely increase market volatility.”

Traders in the federal funds futures markets now see about a two-thirds chance that the Federal Reserve will cut interest rates as early as next March, up from about 20% a week ago, according to a report by the British Financial Times newspaper yesterday, Saturday.

Meanwhile, gold reached an all-time high, rising as much as 1.9% to a peak of $2,075.09 per ounce at the end of the week, surpassing the previous intraday peak recorded in August 2020. The precious metal tends to rise when… The dollar weakens, amid expectations of interest rate cuts.

The Federal Open Market Committee is preparing to keep the benchmark interest rate fixed again at its highest level in 22 years at 5.25% to 5.5%, which is the level it has maintained since last July. The Federal Reserve began a historic campaign to raise interest rates in March 2022 in an attempt to stem rising inflation.

Although investors are optimistic about lowering interest rates in the coming period, uncertainty about controlling inflation still dominates American officials. The Fed needs to see several inflation reports that support this trend.

Last Friday, Powell confirmed this message, warning that the US central bank “is prepared to tighten policy further if it becomes appropriate to do so,” even as he made clear that policy is “moving toward restrictiveness,” and “the full effects of previous actions taken by the Reserve Bank Fed not yet achieved.