Wall Street fell on Friday, losing earlier gains on reports that the US Federal Reserve won’t cut rates by half a percent as so many investors reckon it will.
A report in the Wall Street Journal said the central bank would look at a quarter of a percent cut at its two-day meeting at the end of this month (July 30-31).
In comments later on Friday a senior Fed member said he saw no need for a rate cut from the central bank – that could over well see further weakness.
In fact, by the time trading ended on Friday night the early futures trading for tonight showed a drop of 121 for the Dow (0.4%), a 1.26% drop for the S&P 500 and a 1.49% dip for the Nasdaq as those fears that surfaced on Friday continued
All this interest rate speculation ended up overshadowing news that Iran said it seized two British-flagged oil tankers in the Strait of Hormuz in the Persian Gulf, raising tension in the area a day after the US claimed to have shot down an Iranian drone (which the Iranians naturally denied).
The S&P 500 index topped the 3,000 mark for the second time in a week in early trade, but then eased back with all three benchmarks notching up their biggest weekly falls since the end of May.
The Dow fell 68.77 points, or 0.25%, to 27,154.2, the S&P 500 lost 18.5 points, or 0.62%, to 2,976.61 and the Nasdaq Composite dropped 60.75 points, or 0.74%, to 8,146.49.
For the week, the Dow lost 0.64%, the S&P fell 1.23% and the Nasdaq shed 1.19%.
The Wall Street Journal reported that Fed officials, based on recent public statements and interviews, signalled they were ready to cut rates by a quarter-percentage point at their July 30-31 meeting but weren’t prepared to make a half-point reduction.
Expectations for a half-point lowering had been on the rise but fell back after the report. Fed-funds futures traders now see a 22.5% chance of a half-point move, down from a more than 40% probability earlier in Friday’s session.
Boston Fed President Eric Rosengren on Friday said he doesn’t think an interest-rate cut is needed at the moment. “Most of the news that we’ve been getting has been pretty good,” Rosengren said in an interview on CNBC.
Rosengren said if he were on the Bank of Japan or the European Central Bank (which meets this week and could announce an easing), he would seriously be thinking about taking additional easing steps.
But he indicated that he believed “The U.S. economy is not at that point. The economy is actually quite reasonable at this stage.”…”I don’t want to ease if the economy is doing perfectly well without that easing,” he added
Marketwatch.com pointed out that Rosengren was the last Fed official to speak publicly before the central bank goes silent to prepare for its meeting. That is also probably why the Wall Street Journal published its report on Friday on a smaller than wanted rate cut idea out of the July meeting of the Fed. It’s all about conditioning the market.
US economists say the first estimate of second-quarter economic growth will be published later this week and a weak number could help push the Fed towards a certain rate cut of 0.25%.