US stocks wobbled on mixed earnings, tech woes and Fed talks

·         Overall Fed talks indicate Fed now preparing the market for a pause in Nov’24 and a 25 bps rate cut in Dec’24; Gold surged on the Israel-Iran war of words

·         Fed’s Governor Waller makes it almost clear that unless there is an unusual slump in inflation and surge in unemployment (another GFC), the Fed may continue a 25 bps gradual rate cut every QTR end for CY25-26

Wall Street Futures wobbled on mixed earnings/report card, fading hopes of another rate cut of 25 bps in Nov’24, stalled core disinflation, less dovish Fed talks, and boiling geopolitical tensions (Gaza and Ukraine war), especially the shape & intensity of Israel’s counter-attack on Iran. Although Iran reportedly promised the US that it would not attack any nuclear or oil infra of Iran and would target only selected military facilities, the market is not relieved, while Iran is also daring that any potential Israel attack will be dealt with ‘serious’ retaliation.

On the other side, the US is trying desperately to not initiate any serious military conflict in the Middle East, at least just before the US Presidential Election on 20th Nov’24. Overall, it seems that Israel may not launch any all-out war against Iran in the coming days except for some types of a ‘staged attack’ (like last time on Apr 24) to satisfy domestic political compulsions.

The Israeli PM is now enjoying a higher political approval rate than a few months ago after launching an all-out war against Hamas and also Hezbollah. Gold has been a major beneficiary of Gaza war geopolitical tensions in the last year as it surged from around 1650 to almost 2685 since early Oct’23, when Hamas carried out the heinous attack on an Israeli concert in the border town near Gaza strip and adducted several Israeli and other nationals including some Americans. Gold was also boosted by the Fed’s post-COVID plan of almost 10-12 rate cuts from late 2024 to early 2027 and an unexpected -50 bps rate cut in Sep’24. Gold is also being boosted by 3D-higher public deficits, higher debts and higher currency devaluation. Traditionally, Gold is an inflation hedge physical asset, limited in supply, unlike unlimited paper currency.

On Tuesday (15th Oct 24), Atlanta Fed’s Bostic said:

·         The US economy performing quite well, and confident inflation will get to the 2% target

·         I see only one more 25 bps rate cut this year

·         The median was... 50 basis points more, above and beyond the 50 basis points that were done in September; My dot was 25 basis points more

·         I don't have a recession in my outlook

·         Expects inflation to be choppy, and employment to remain robust

·         My dot was 25bp more in 2024 beyond the September 50 bps cut

·         I am keeping my options open

On Tuesday, the SF Fed President Daly said:

·         If the forecast is met, I see one or two rate cuts this year

·         Risks to our jobs and inflation mandate now more balanced

·         Monetary policy is still restrictive and working to lower inflation

·         Continued progress on Fed goals not assured, Fed must remain vigilant

·         Fed must deliver on 2% inflation while keeping the job market at full employment

·         A continued expansion remains very possible

·         The labor market has cooled, largely normalized

·         The economy is clearly in a better place, inflation has eased a lot

·         Fully expects the economy to see bumps, disturbances and scares

·         The job of achieving a soft landing is not complete

·         Refrains from declaring victory despite inflation above 2%

·         Near inflation target but no victory declared

·         The balance sheet is returning to normal levels

·         I see little evidence of direct inflationary impact from balance sheet expansion

·         I will closely monitor inflation data

·         Concerned about the impact on the labor market

·         Not concerned about re-accelerating inflation

·         One or two more Fed rate cuts are likely this year

·         Fed's goal is to lower the growth rate of prices to 2% not to decrease prices

·         Business Contacts Expressing Cautious Optimism

·         Firms see hybrid work situation, not return to 5-day office week

·         No further slowdown is desired in the labor market

·         Don't want to see the labor market slow down

·         One or two additional rate reductions are likely this year

·         Will adjust rates as necessary

·         To monitor labor market and inflation; will keep an eye on data

·         I see rising real interest rates in the economy

·         September rate cut not indicative of future cuts

·         Fed is recalibrating interest rates for the economy

·         Increasing the real rate would harm the labor market

·         A steady policy rate resulted in a rising real rate

·         Confident inflation will reach the 2% goal

·         Full employment reached

·         I see confidence in reaching the 2% inflation target

·         The labor market has downshifted to a sustainable pace

·         The Fed must deliver 2% inflation while keeping the job market at full employment

·         Continued progress on the Fed goals is not assured, the Fed must remain vigilant

·         Fed monetary policy is still restrictive and we are working to lower inflation

·         The data shows public expects inflation to ease more over time

·         The current unemployment rate is near the long-run level

·         The economy is clearly in a better place, inflation has eased a lot

·         The lack of Fed dissents doesn't mean that officials fully agree

·         Inflection points, like now, are likely to generate more dissent

·         I am more comfortable that the Fed can wind down the balance sheet without market trouble

·         Talk of gradual rate cuts means less than it appears

·         If forecasts are met, I see one or two more rate cuts this year

·         I still see room to run the Fed’s balance sheet down further

·         Keeping a large Fed balance sheet has costs

·         It is good for the Fed to be gradual with policy when times are uncertain

·         We must watch markets carefully for signs balance sheet wind down should stop

·         Still sees room to run the Fed's balance sheet down further

On Tuesday, the Minneapolis Fed President Kashkari said:

·         Neutral rate is likely higher now than where it was pre-pandemic

·         If US debt continues to increase then the neutral rate will also increase

·         The economy is in the final stages of getting inflation back to 2%

·         It's unclear how restrictive monetary policy is

·         The job market remains strong

·         Recent jobs data shows the labor market isn't weakening quickly

·         Further modest rate cuts appear appropriate

·         The future path of monetary policy to be driven by data, the economy's performance

·         A lot of progress made on inflation, labor market is strong

·         Not worth it to have the unemployment rate shoot higher

·         Don't think China is remotely competitive with us

·         Not at all worried the Chinese Yuan could replace the US dollar as a global reserve currency

·         Bitcoin has been around for a dozen years and it's still useless

·         Generative Artificial Intelligence, after two years, looks to have real potential

On Tuesday, Fed’s Governor Waller said:

·         Fed should proceed with more caution on rate cuts than was needed at the September meeting

·         My baseline calls for reducing the policy rate gradually over the next year

·         The policy rate is currently restrictive

·         If the economy proceeds as expected, can move policy to a neutral stance at a deliberate pace

·         If, in a less likely case, inflation falls below 2% or the labor market deteriorates, the Fed can front-load rate cuts.

·         If inflation unexpectedly rises, the Fed could pause rate cuts

·         Latest inflation data is disappointing

·         The economy is on solid footing, and may not be slowing as much as desired; expect GDP to grow faster in 2H 2024

·         Household resources for future consumption are in good shape

·         Consumers are eager to make big-ticket purchases as rates come down, with pent-up demand

·         The labor market is quite healthy, labor supply and demand have come into balance

·         Hurricanes, Boeing strike may reduce October payrolls growth by 100,000

·         Looking ahead, expect payroll gains to moderate and, the unemployment rate to drift higher but stay historically low

·         Watching inflation data to see how persistent the recent uptick is; progress on inflation has been a rollercoaster

On Friday (11th Oct24), the Dallas Fed President Logan said:

·         The less restrictive policy will still cool inflation

·         Recent inflation data is very welcome

On Friday, the Chicago Fed President Goolsbee said:

·         Inflation has cooled, and the labor market remains strong

·         Doesn't see convincing evidence that the economy is overheating

·         Let's not overreact to ‘one number’

·         Dot plots indicate that policymakers are of the view that inflation will move toward the target

·         The big picture is that inflation is ‘way down’, unemployment is at a level we are happy with

·         The difference between now and the 70s is that inflation expectations never went up this time

·         The market trusted the Fed's credibility in promising that inflation would return to the 2% target

On 10th Oct’24, Fed’s Bostic said:

·         I am open to pausing a rate cut at the November meeting if economic data supports it

·         I supported the half-point rate cut in the previous meeting.

·         I penciled in a potential quarter-point cut by the end of the year, but open to skipping a move if data trends as expected.

·         September's stronger-than-expected CPI and payroll reports suggest the need to be patient and possibly pause

·         Emphasized data volatility and expects more fluctuations in upcoming data

·         The Fed’s current rate is 4.75%-5%, with a neutral rate estimated at 3%-3.5%, which I expect to move toward next year

·         Shifts in supply chains mean business cost structures will also change, something the Fed will need to understand

·         Businesses say that consumers have become much more price-sensitive, curbing their ability to raise prices

·         Inflation is on the decline but we must remain vigilant due to high core readings

·         The labor market has slowed down but is not slowing or the week

·         There is a risk that the economy is too strong, and could hamper policy recalibration

·         Still laser-focused on inflation but the job market is also salient

·         The inflation rate is still quite a ways above 2%

·         The economy is close to the Fed's targets and is moving closer

·         Monthly job creation is above what is required to account for population growth

On 10th Oct’24, the NY Fed President Williams said:

·         I expect inflation to wane to 2.25% this year and close to 2% next year

·         Sees GDP this year between 2.25% and 2.50%

·         The recent Fed rate cut should leave the economy in a strong place

·         Pace and size of future cuts to be determined by economic data

·         The job market is unlikely to be an inflation driver going forward

·         Sees unemployment at 4.25% and around that in 2025

On 10th Oct’24, Fed’s Barkin said:

·         Inflation is headed in the right direction

·         Inflation is down but we can't declare victory

·         I see a risk that lower rates boost housing demand

On 10th Oct’24, Fed’s Goolsbee said:

·         Inflation came in around expectations, improvement in housing

·         There have been a series of 'close call' type meetings

·         There will probably be more close-call meetings

·         Still a lot of data coming in on what's next, nothing is ever on the table

·         We don't want to get ahead or behind

·         The job market has cooled to a level of full employment

·         Fed projections show vast majority believes that over the next 12-18 months, rates come down a fair amount

·         The Fed has to take a longer view

If data continues to illustrate that employment is not deteriorating, that will relieve some of my concerns

Relevant Full text of Fed Governor Waller's speech on 14th Oct’24: Thoughts on the Economy and Policy Rules at the Federal Open Market Committee

“In the three weeks or so since the most recent FOMC meeting, data we have received has been uneven, as it sometimes has been over the past year. I continue to judge that the U.S. economy is on a solid footing, with employment near the FOMC's maximum employment objective and inflation in the vicinity of our target, even though the latest inflation data was disappointing.

Real gross domestic product (GDP) grew at a 2.2 percent annual rate in the first half of 2024, and I expect it to grow a bit faster in the third quarter. The Blue Chip consensus of private sector forecasters predicts 2.3 percent, while the Atlanta Fed's GDPNow model, based on up-to-the-moment data, is predicting real growth of 3.2 percent.

Earlier, there were concerns that GDP in the first half of this year was overstating the strength of the economy, since gross domestic income (GDI) was estimated to have grown a mere 1.3 percent in the first half of this year, suggesting a big downward revision to GDP was coming. However, revisions received after our most recent FOMC meeting showed the opposite—GDI growth was revised up substantially to 3.2 percent.

This change in turn led to an upward revision in the personal saving rate of about 2 percentage points in the second quarter, leaving it at 5.2 percent in June. This revision suggests that household resources for future consumption are actually in good shape, although data and anecdotal evidence suggest that lower-income groups are struggling. These revisions suggest that the economy is much stronger than previously thought, with little indication of a major slowdown in economic activity.

That outlook is supported by consumer spending that has been and continues to be strong. Though the growth in personal consumption expenditures (PCE) has moderated since the second half of 2023, it has continued at an average pace of close to 2.5 percent so far this year. Also, my business contacts believe that there is considerable pent-up demand for durable goods, home improvements, and other big-ticket items, a demand that built up due to high interest rates for credit cards and home equity loans.

Now that rates have started to come down and are expected to come down more, consumers will be eager to make those purchases. For business spending, purchasing managers for manufacturers describe ongoing weakness in that sector, but those for the large majority of businesses outside of manufacturing continue to report a solid expansion of activity.

Now let's talk about the labor market. Only a couple of months ago, it appeared that the labor market was cooling too quickly. Low numbers for job creation and a jump in the unemployment rate from 4.1 percent in June to 4.3 percent in July raised risks that the labor market was deteriorating. To remind you of how bad the markets viewed the July data, some Fed watchers were calling for an emergency FOMC meeting to discuss a rate cut. While the unemployment rate ticked down in August, job growth was once again well below expectations. Many were arguing that the labor market was on the verge of serious deterioration and that the Fed was behind the curve even after a 50 basis point cut in the policy rate at the September FOMC meeting.

Then we got the September employment report. Job creation in September was unexpectedly strong at 254,000 and the unemployment rate fell back down to 4.1 percent, which is where it was in June. The report also showed big upward revisions to payroll gains for the previous two months. Together, the message was loud and clear: While job creation has moderated and the unemployment rate has risen over the past year, the labor market remains quite healthy.

Along with other new data on the labor market, the evidence is that labor supply and demand have come into balance. The number of job vacancies, a sign of strength in the labor market, has fallen gradually since the beginning of the year. The ratio of vacancies to unemployed is at 1.2, about the level in 2019, which was a pretty strong labor market. To put this number into perspective, recent research has shown that this ratio has been above 1 only three times since 1960. The quits rate, another sign of labor market strength, has fallen lower than it was in 2019, a decrease which partly reflects that the hiring rate has fallen as labor supply and demand has come into better balance.

In sum, based on payrolls, the unemployment rate, and job revisions, there has been a very gradual moderation in labor demand relative to supply, but not a deterioration. The stability of the labor market, as reflected in these two measures as well as the other metrics I mentioned, bolsters my confidence that we can achieve further progress toward the FOMC's inflation goal while supporting a healthy labor market that adds jobs and boosts wages and living standards for workers.

I will be looking for more evidence to support this outlook in the weeks and months to come. But, unfortunately, it won't be easy to interpret the October jobs report to be released just before the next FOMC meeting. This report will most likely show a significant but temporary loss of jobs from the two recent hurricanes and the strike at Boeing. I expect these factors may reduce employment growth by more than 100,000 this month, and there may be a small effect on the unemployment rate, but I'm not sure it will be that visible. Since the jobs report will come during the usual blackout period for policymakers commenting on the economy, you won't have any of us trying to put this low reading into perspective, though I hope others will.

Looking ahead, I expect payroll gains to moderate from their current pace but continue at a solid rate. The unemployment rate may drift a bit higher but is likely to remain quite low in historical terms. While I believe the labor market is on a solid footing, I will continue to watch the full range of data for signs of weakness.

Meanwhile, inflation, after showing considerable progress for several months toward the FOMC's 2 percent target, likely moved up in September. The consumer price index grew 0.2 percent over the past month, 2.1 percent over the past three months, 1.6 percent over six months and 2.4 percent in the past year. Oil prices fell over most of the summer but then more recently have surged. Excluding energy and also food prices that likewise tend to be volatile, and just as it did in August, core CPI inflation printed at 0.3 percent in September and 3.3 percent over the past year.

Private-sector forecasts are predicting that PCE inflation, the FOMC's preferred measure, will also move up in September. Core PCE prices are expected to have risen around 0.25 percent last month. While not a welcome development, if the monthly core PCE inflation number comes in around this level, over the last 5 months it is still running very close to 2 percent on an annualized basis. We have made a lot of progress on inflation over the last year and a half, but that progress has been uneven—at times it feels like being on a rollercoaster. Whether or not this month's inflation reading is just noise or if it signals ongoing increases, is yet to be seen. I will be watching the data carefully to see how persistent this recent uptick is.

The FOMC's inflation goal is an average of 2 percent over the longer run and there are some good reasons to think that price increases will be modest going forward. I am hearing reports from firms that their pricing power seems to have waned as consumers have become more sensitive to price changes. There has also been a steady slowing in the growth of labor compensation. Average hourly earnings growth in September indeed ticked up to 4 percent over the past year.

And though it might seem like wage increases of 4 percent a year would put upward pressure on inflation that is near 2 percent, that might not be true if one considers productivity, which has grown at an average annual rate of 2.9 percent for the past five quarters. Some of this strength was making up for productivity that shrank due to the pandemic, but the longer it continues—up 2.5 percent for the second quarter—the better productivity supports wage growth of 4 percent, or even higher, without driving up inflation. All that said, I will be watching all the data related to inflation closely.

With the labor market in rough balance, employment near its maximum level, and inflation generally running close to our target over the past several months, I want to do what I can as a policymaker to keep the economy on this path. For me, the central question is how much and how fast to reduce the target for the federal funds rate, which I believe is currently set at a restrictive level. To help answer questions like this, I often look at various monetary policy rules to assess the appropriate setting of policy. Policy rules have long been of serious interest to the Shadow Open Market Committee. So before I turn to my views on the future path of policy, I thought I would talk about monetary policy rules versus discretion and begin with some background about the use of rules at the FOMC.

For a brief overview of the history of the advent of rules at the Board, I have been directed to the second chapter of The Taylor Rule and the Transformation of Monetary Policy written by George Kahn, and I have also consulted the memories of longtime members of the Board staff. Rules came along in the 1990s as the Fed was moving away from monetary targeting, focusing more on interest-rate policy, and taking its first major steps toward increased transparency. There was immediate interest in Taylor-type rules among Fed staff, and even some contributions of research. There was a presentation to the FOMC on rules in 1995, and that was the same year that John Taylor's Bay Area colleague, Janet Yellen, was the first policymaker to mention the Taylor rule at an FOMC meeting.

While FOMC decisions mimicked a Taylor rule much of the time under Chairman Alan Greenspan, he was famously an advocate of "constructive ambiguity" in communication, and he and other central bankers since have resisted the suggestion that decisions could be handed over to strict rules. Today, of course, a number of rules-based analyses are included in the material submitted to policymakers ahead of every FOMC meeting, and we publish the policy prescriptions of different rules as part of the Board's semi-annual Monetary Policy Report. Rules have become part of the furniture in modern policymaking.

As everyone here knows, but for the benefit of other listeners, Taylor rules relate the level of the policy interest rate to a limited number of other economic variables, most often including the deviation of inflation from a target value and a measure of resource use in the economy relative to some long-run trend; There are numerous forms of the Taylor rule, but they generally fall into two categories.

The first of these, an inertial rule, has the property that the policy rate changes only slowly over time. I tend to think of it as an approach that captures the reaction function of a policymaker in a stable economy where the forces that would tend to change the economy and policy build over time. When change does occur, a gradual response may give policymakers time to assess the true state of the economy and the possible effects of their decision. One example I can use is the steadfastness of policymakers in the latter part of 2023 when inflation fell more rapidly than was widely expected, and again in early 2024, when it briefly escalated. The FOMC did not change course either time, an approach validated by inertial rules.

A non-inertial rule, on the other hand, allows and calls for relatively quick adjustments to policy. The guidance from these rules is more useful when there is a turning point in the economy, and policymakers need to stay ahead of events. One saw these non-inertial rules prescribe a sharper rise in the policy rate above the effective lower bound starting in 2021 as inflation began climbing above the FOMC's 2 percent target. Non-inertial rules are also more useful in the face of major shocks to the economy such as the 2008 financial crisis and the start of the pandemic.

The great promise of rules is that they provide a simple and reliable guide to policy, but what should one do when different rules recommend different policy actions given the same economic conditions? Right now, inertial rules tell us to move slowly in reducing policy rates toward a neutral stance that neither restricts nor stimulates the economy. On the other hand, non-inertial rules tell us to cut the policy rate more aggressively, subject to the caveat that one is certain of the values of all the 'star' variables: U*, Y*, and r*.

I think the answer is that while rules are valuable in helping analyze policy options, they have limitations. Among these are the limits of the data considered, which is typically narrower than the range of data that policymakers use to make decisions, and also the fact that simple policy rules do not take into account risk management, which is often a critical consideration in policy decisions. So, while policy rules serve as a good check on discretionary policy, there are times when discretion is needed. As a result, I prefer to think of them as "policy rules of thumb".

Turning to my view of the path for policy, let me discuss three scenarios that I have had in mind to manage the risks of upcoming decisions in the medium term:

The first scenario is one where the overall strong economic developments that I have described today continue, with inflation nearing the FOMC's target and the unemployment rate moving up only slightly. This scenario implies to me that we can proceed with moving policy toward a neutral stance at a deliberate pace. This path would be based on the judgment that the risks to both sides of our dual mandate are balanced. In this circumstance, our job is to keep inflation near 2 percent and not slow the economy unnecessarily.

Another scenario, less likely in light of recent data, is that inflation falls materially below 2 percent for some time, and/or the labor market significantly deteriorates. The message here is that demand is falling, the FOMC may suddenly be behind the curve, and that message would argue for moving to neutral more quickly by front-loading cuts to the policy rate.

The third scenario applies if inflation unexpectedly escalates either because of stronger-than-expected consumer demand or wage pressure or because of some shock to supply that pushes up inflation. As we learned in the recovery from the pandemic recession, when demand was stronger and supply weaker than initially expected, such surprises do occur. In this circumstance, as long as the labor market isn't deteriorating, we can pause rate cuts until progress resumes and uncertainty diminishes.

Most recently, we have seen upward revisions to GDI, an increase in job vacancies, high GDP growth forecasts, a strong jobs report, and a hotter-than-expected CPI report. This data is signaling that the economy may not be slowing as much as desired. While we do not want to overreact to this data or look through it, I view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting. I will be watching to see whether data, due out before our next meeting, on inflation, the labor market and economic activity confirms or undercuts my inclination to be more cautious about loosening monetary policy.

Whatever happens in the near term, my baseline still calls for reducing the policy rate gradually over the next year. The median rate for FOMC participants at the end of 2025 is 3.4 percent, so most of my colleagues likewise expect to reduce policy over the next year. There is less certainty about the final destination.

The median estimated longer-run level of the federal funds rate in the Committee's Summary of Economic Projections (SEP) is 2.9 percent but with quite a wide dispersion, ranging from 2.4 percent to 3.8 percent. While much attention is given to the size of cuts over the next meeting or two, I think the larger message of the SEP is that there is a considerable extent of policy restrictiveness to remove, and if the economy continues in its current sweet spot, this will happen gradually.”

Conclusions:

After Sep’24, the 6MRA of US core inflation (CPI+PCE) should be around +3.0%, the unemployment rate of 4.1% against a target of +2.0% (core inflation-price stability) and 3.5% (aspired unemployment rate). But the Fed also makes it quite clear that it regards even a 4.0% average unemployment rate; i.e. 96% employment rate as maximum sustainable employment for the longer/medium term.

Overall as per core CPI and PPI data trend, the sequential core PCE inflation for Sep’24 may come to around 0.3%; in both scenarios, the annual rate of US core PCE inflation should come around +2.7% in Sep’’24 against +2.7% sequentially (unchanged).. The core CPI for Sep’24 was at +3.3% and the 6M rolling average US core inflation (CPI+PCE) would be around +3.0% in Sep’24, almost unchanged sequentially; i.e. overall disinflation pace may have almost stalled in Sep’24/Q3CY24, which may also keep Fed for a pause in Nov’24 and a normal cut of -25 bps in Dec’24; i.e. Fed may follow a normal rate cut pace of -25 bps each every quarter end rather than further jumbo cut of -50 bps or even back-to-back cuts of -25 bps. Fed has to evaluate incoming core inflation and employment data and the outlook thereof to gradually reduce restrictive real rates.

 

As per modified Taylor’s rule, the average Fed repo rate for CY24-25 should be around +5.30% and +4.30%.

As per the current run rate, US average core inflation may come down to +2.0% levels on a sustainable basis only by Dec’27. Thus Fed has to dial back restrictive rates carefully gradually with normal -25 bps every other meeting (QTR end), so that US core inflation (PCE+CPI) gradually comes down to targets, keeping the unemployment rate around 4.0% or even below it; but not above 4.5% to ensure a soft landing.

Fed Chair Powell and most also other Fed policymakers almost poured cold water on further jumbo rate cuts (50 bps) and indicated normal 25 bps rate cuts in the coming days unless the unemployment rate unexpectedly surges (say above the 4.5% red line). Moreover, Powell indicated another 25 bps rate cut in Nov’24 may not be assured unless the unemployment rate unexpectedly jumps in September. As per some reports, Powell may have penciled the policy path slightly above the median in the Sep’24 dot-plots.

The Next Fed meeting would be on 7th November and before that Fed may have official access to only one inflation and employment situation report for September only. Thus unless there is an unusual surge in the unemployment rate or an unexpected drop in core CPI, the Fed may pause. The US average (6MRA) core inflation (CPI+PCE) may have already stalled in Q3CY24 at around +3.2%, while the 6MRA (average) unemployment rate is around 4.1% as per available data. Thus the Fed may go for a pause in Nov’24 and cut 25 bps in Dec’24, not -50 bps as expected by the market.

Looking ahead unless there is an unusual slump in core inflation and surge in the unemployment rate (an all-out recession or another financial crisis, pandemic-like situation, WW-III etc) Fed may stick to gradual normalized 25 bps rate cuts every other meeting (QTR end with a fresh SEP).

Bottom line:

The projected Fed rate cut of -50 bps by Dec’24 not be assured as US core disinflation may have stalled in Q3CY24, while average unemployment remains around 4.0%; Fed may cut -25 bps in Dec’24 after a pause in Nov’24.

Market Impact:

On Wednesday, Wall Street Futures were trading mixed on hopes of blockbuster report cards from banks & financials led by JPM, Goldman Sachs and MS, while dragged by techs amid growing regulatory concerns on high-end AI chips for China and certain other unfriendly countries (domestic political compulsions ahead of US election). The SPX-500 edged up 0.3%, and the DJ-30 surged 300 points, while the NQ-100 was almost flat, recovered from earlier deep red. Utilities and financials outperformed, while communication services and consumer staples lagged.

Meanwhile, Intel slips after the Chinese cyber association called for a review of Intel products sold in China; the Chinese government is asking all stakeholders to stop using US-made chips, especially in the government sector. Mega caps including Apple, Microsoft, Amazon, Meta and Alphabet slumped, while Nvidia recovered 1% after a 4.5% slide the previous day, driven by ASML's lowered sales forecast.

Weekly-Technical trading levels: DJ-30, NQ-100, SPX-500, and Gold

Whatever the narrative, technically Dow Future (42500) has to sustain over 42700 for any further rally to 42900/43050-43250/43500* and 43700/44000-44500/44800 in the coming days; otherwise sustaining below 42600/650, DJ-30 may again fall to 42400/42300-42100/42000 and 41800/41500-41200/41000* and further 40700/40300-40100/40000* and 39700/394350-39000*/38500 in the coming days.

Similarly, NQ-100 Future (20200) has to sustain over 20400 for a further rally to 20600/20700-20800/21050* and further to 21300/21700-21900/22050 and even 23000 levels in the coming days; otherwise, sustaining below 20350/300, NQ-100 may again fall to 20000/19750* and 19600/19350-19100/18900 and further 18750/18550-18400/18200-17950/17600 and 17450-17300/17000 in the coming days.

Technically, SPX-500 (5780), now has to sustain over 5850 for any further rally to 5900 and 6000/6050-6100/6150 in the coming days; otherwise, sustaining below 5825/800, may again fall to 5725-5675/5625-5600/5575*-5550/5500-5475/5450 and 5425/5390-5370/5300* and 5250/5100* and further 5050/4950*-4850/4750 in the coming days.

Also, technically Gold (XAU/USD: 2625) has to sustain over 2655 for a further rally to 2675*/2700-2725/2750 in the coming days; otherwise sustaining below 2650/2645, may again fall to 2625 and 2595/2590-2585/2575, may again fall to 2560*/2540-2530/2515 and 2495/2480-2470*/2425 and further 2415/2400-2390/2375 in the coming days (depending upon Fed rate cuts and Gaza/Ukraine war trajectory).