In the second day of his semi-annual testimony to Congress–this time in front of the Senate–Federal Reserve chairman Jerome Powell sounded even more likely to support an interest rate cut at the central bank’s July meeting. The Fed has room to cut rates, he said, and the Fed may have erred in keeping monetary policy too tight.
But financial markets didn’t move much in reaction. Which makes sense if you note that the odds of an interest rate cut according to the CME FedWatch Tool, were at 100% yesterday. No way to go higher than that. The odds remained at 100% today.
The Fed Funds Futures markets did pull back on the odds of a 50 basis point cut at the meeting with those odds falling back to 18.3% from 29.2% yesterday.
Odds of an additional interest rate cut at the Fed’s September 18 meeting were 71.1% this morning with odds of an additional 50 basis point cut (3 cuts and 75 basis points in all) dropping to 11.8% from 18.8% yesterday.
I’m starting to see Wall Street banks projecting that the yield on the two-year Treasury note could slide to 1% by the end of the year. The yield on the two-year Treasury was at 1.84% today. The yield on the 10-year Treasury climbed 6 basis points to 2.12%.
As of 2 p.m. New York time the Standard & Poor’s 500 was down 0.10% and the Dow Jones Industrial Average was up 0.50%. The NASDAQ Composite lost 0.31% and the Russell 2000 small cap index was down 0.61%.
The dollar drifted slightly lower today with the Dollar Spot Index slipping 0.04%. (Lower interest rates would push the dollar lower.) Gold also showed some weakness declining 0.33% but remaining above $1400 at $1407.80
Oil gave back some of its Tropical Storm Barry-related gains of the past few days with U.S. benchmark West Texas Intermediate falling 0.35% but hanging above the $60-a-barrel-level at $60.22. International benchmark Brent crude fell 0.72% to $66.53 a barrel.
Forecasts say Barry will make landfall in Louisiana on Saturday as a hurricane.