The U.S. Federal Reserve left interest rates unchanged at the conclusion of its latest policy-setting meeting on Wednesday, as widely expected, but acknowledged recent progress on inflation, raising investor hopes that the central bank could begin cutting rates in the near future.
The Federal Open Market Committee, the FOMC, kept its benchmark rate in a range of 5.25% to 5.5%, as it has done over the past year as it battled elevated inflation.
However, recent data point to progress on inflation, suggesting that the Fed’s restrictive policies are working.
“Inflation has eased over the past year but remains somewhat elevated,” the Fed said Wednesday in its July policy statement, with the addition of the word “somewhat” marking a subtle change from its June statement.
A September rate cut of 25 basis points is now almost fully priced in, according to Investing.com’s Fed Rate Monitor Tool, but traders also added to bets the Federal Reserve will go big when it does cut.
Rate futures prices now reflect about a 17% chance of a 50-basis point rate cut in September, versus about 5% before Wednesday’s meeting.
The Fed also acknowledged a cooling in the labor market, stating that the committee is “attentive to the risks to both sides of its dual mandate” – to maintain stable prices and strive for maximum employment.
Friday sees the release of the closely watched monthly nonfarm payrolls report, as investors try to gauge whether recent signs of cooling in the labor market continued in July.
Economists are expecting the U.S. economy to have created 177,000 jobs in July, moderating from 206,000 in the prior month.
U.S. stock futures traded in a steady manner Thursday, as investors digested the latest Federal Reserve meeting as well as more corporate earnings.
By 04:25 ET (08:25 GMT), the Dow futures contract was 40 points, or 0.1%, lower, while S&P 500 futures climbed 7 points, or 0.1%, and Nasdaq 100 futures rose by 45 points, or 0.2%.
The Wall Street indices closed higher Wednesday, with the S&P 500 gaining 16%, its best day since February, the Nasdaq Composite surging 2.6%, and the Dow Jones Industrial Average rose 0.2%.
These gains followed the Fed signaling that a rate cut could occur in September if inflation continues to cool.
There are more earnings to digest Wednesday, including from Apple (NASDAQ:AAPL) [see below] and Amazon (NASDAQ:AMZN) after the close. Other names set to release numbers include Intel (NASDAQ:INTC), Booking Holdings (NASDAQ:BKNG) and Moderna (NASDAQ:MRNA).
Economic data due for release Thursday includes weekly jobless claims data, construction spending for June and ISM Manufacturing data for July, ahead of Friday’s widely-watched monthly jobs report.
Meta Platforms (NASDAQ:META) reported strong second-quarter earnings after the close Wednesday, bucking the recent trend of poorly received results from the country’s mega cap tech companies.
Meta Platforms, the company that owns and operates Facebook, Instagram, Threads, and WhatsApp, among other products and services, beat market expectations for second-quarter revenue, seeing quarterly growth of 22%.
Meta Chief Financial Officer Susan Li told analysts on a call that the company was “continuing to see healthy global advertising demand”, benefiting from its plans to use artificial intelligence to improve targeting, ranking and delivery systems for digital ads on its platforms.
The tech giant also issued a rosy sales forecast for the third quarter, signaling that robust digital-ad spending on its social media platforms can cover the cost of its artificial-intelligence investments.
Although Meta’s costs rose 7% in the second quarter, its revenue jump topped expense growth substantially and led to a 9-point rise in operating margin, to 38% from 29%.
Meta stock soared over 7% after hours, contrasting with the losses that both Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) suffered when they released these numbers over the last few days.
It’s Apple’s (NASDAQ:AAPL) turn to face the judgment of investors, as the iPhone maker releases its fiscal third-quarter results after the close Thursday.
Apple’s revenue is expected to have risen 3.3% in the third quarter from a year earlier, bouncing back after a decline of 4.3% in the second quarter, as it won back some customers in China with big iPhone discounts.
Sales of the iPhone, which account for nearly half of Apple’s revenue, are expected to have decreased by 2.2% in the three months ended June, a big improvement from the 10.5% decline in the second quarter, according to LSEG data.
Under pressure from a resurgent Huawei in China, Apple in May offered hefty discounts on select iPhone models, helping narrow sales declines in the country.
Elsewhere, iPad sales likely jumped 14.1%, the fastest growth since the holiday quarter of 2022, after Apple launched a new AI-focused iPad Pro and a larger iPad Air in May to revive demand for this product line.
Apple’s shares have risen nearly 30% in the past three months, though a recent market selloff led by megacaps led to the stock slipping more than 7% from its July 15 record.
The Bank of England completes this week’s round of central bank rate decisions later Thursday, after the Bank of Japan delivered its second interest rate hike in 17 years and the U.S. Federal Reserve hinted it could lower rates in September after standing pat.
The moves, or lack of them, by the BOJ and the Fed were largely expected, but there is greater uncertainty than usual of the Bank of England’s meeting as key policymakers have not spoken publicly for more than two months in the run-up to the country’s general election in early July.
The Bank of England has held its benchmark interest rate at a 16-year high of 5.25% for the past year as it tackled inflation, which soared to a 41-year high of 11.1% in October 2022.
U.K. consumer price inflation returned to the BOE’s 2% target in May and stayed there in June, suggesting a cut later Thursday is a distinct possibility.
In June, the MPC voted 7-2 to keep rates on hold, but minutes of the meeting recorded that several of those who voted to hold had been close to voting for a cut.
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