Stocks are dipping on fears the Fed might hold off on cutting interest rates — it’s ‘all investors care about’

FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., June 17, 2019. REUTERS/Brendan McDermid/File Photo

  • Stocks dipped Wednesday ahead of Federal Reserve Chair Jerome Powell’s testimony in front of Congress, as traders worried he might signal interest rates won’t be cut this month as expected.
  • “Jerome Powell’s outlook on the domestic economy and his comments on whether a rate cut is needed at this stage is all investors care about,” said Konstantinos Anthis, head of research at ADSS.
  • Excellent US employment figures have fueled concerns a rate cut might be taken off the table.
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Stocks slipped on Wednesday ahead of Jerome Powell’s testimony in front of Congress, as traders worried the Federal Reserve’s chief might signal the central bank won’t cut interest rates this month as expected.

Investors suspect the Fed will lower the federal funds rate by 25 basis points (0.25%) to around 2%, but their confidence has been knocked by excellent non-farm payroll figures last week. The employment data showed the US economy added 224,000 jobs in June, about a third more than predicted and roughly triple the figure for May.

“Jerome Powell’s outlook on the domestic economy and his comments on whether a rate cut is needed at this stage is all investors care about,” said Konstantinos Anthis, head of research at ADSS. “Despite the robust NFPs last week, there are simply too many signs of slowdown in several sectors of the economy for the Fed to do nothing and risk falling behind the curve.”

However, Powell shouldn’t act too aggressively given the lack of a “looming recession” and the Fed’s “little room to maneuver” with interest rates already below historic levels, Anthis added.

President Donald Trump’s repeated calls for the Fed to cut rates have also complicated matters.

“The mounting political pressure on the Fed’s policy may toughen Powell and his team’s job,” said Ipek Ozkardeskaya, senior market analyst at London Capital Group. “Signaling more interest rate cuts at this point may put the central bank’s independence in jeopardy.”

Here’s the market roundup as of 9:15 a.m. (4:15 a.m. ET):

Asian indices closed broadly lower with the Shanghai Composite and SZSE Component down 0.4%, and Japan’s Nikkei down 0.2%. Hong Kong’s Hang Seng rose 0.2%.

European equities were mixed with Germany’s DAX down 0.2%, Britain’s FTSE 100 down 0.1%, and the Euro Stoxx 50 almost flat.

US markets are poised to open slightly lower. Futures underlying the Dow Jones Industrial Average, S&P 500, Nasdaq were all down about 0.1%.

Oil prices have jumped with West Texas Intermediate crude up 1.9% at $58.90, and Brent crude up 1.6% at $65.20.

Gold was down 0.4% at $1,396.

Bitcoin has climbed 3% to around $12,910.

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