Fed remains on easing mode, but no rate cuts until data is supportive

Markets fear impact of higher-for-longer rates but also hope for cut later in 2024

- Ven Sreenivasan

Last week, Federal Reserve chairman Jerome Powell indicated that after a series of disappointing inflation data, the US central bank is unlikely to cut rates by June. At the same time, he remains convinced that deflationary pressures are still in play, and has no intention of hiking rates.

In short, the Fed funds rate could stay unchanged at 5.25 per cent to 5.5 per cent for the foreseeable future. How the highest rates in 23 years prevailing through much of the second half of 2024 will impact future corporate earnings and consumer spending remains to be seen.

Markets are now caught between hope and fear: fear about the impact of higher-for-longer rates and hope for a rate cut later in 2024.

This was reflected on Wall Street, where after surging some 500 points on May 2 following Mr Powell's remarks suggesting that there would be no more rate hikes, the Dow Jones Industrials gave up almost all of it by the end of the session. For the week, the marquee index gained 1.14 per cent to 38,675.68 points.

The S&P 500, which has had a volatile few weeks amid concerns of another rate hike, managed to eke out a 0.55 per cent weekly gain to 5,127.79 points, while the tech-heavy Nasdaq rose 1.43 per cent for the week to 16,156.33 points.

In Singapore, the Straits Times Index ended barely unchanged at 3,292.93 points ahead of the release of key labour data in the US.

Markets will watch data flows, especially jobs numbers, to glean the Fed's next move.

On that front, US job growth slowed more than expected in April and annual wage gains cooled.

Non-farm payrolls (NFP) increased by 175,000 jobs in April, compared with estimates of 240,000. Data for March was revised up to show payrolls rising by 315,000 jobs instead of 303,000 as previously reported.

Unemployment rose to 3.9 per cent from 3.8 per cent.

Still, these numbers will not be enough to prompt rate cuts just yet.