Nov inflation figures calm rattled markets

Reaction to Fed's hawkish rate cut potentially signals greater turbulence in the short term

- Ven Sreenivasan

The latest November inflation numbers soothed markets that were nursing a bad midweek bruising caused by the US Federal Reserve's hawkish rate cut last week.

After falling some 3 per cent on Dec 18 and 19, Wall Street recovered on Dec 20 after inflation numbers showed the personal consumption expenditures price index – the Fed's preferred price measure– rising by a mere 0.1 per cent in November, and 2.4 per cent from a year earlier. It was below market expectations of 0.2 per cent, which would have matched the gains in September and October.

The Dow Jones, which lost 2.58 per cent on Dec 19, recovered 1.18 per cent on Dec 20 to close out the week at 42,840.26 points. Despite snapping a 10-day slide, the Dow was down 2.25 per cent for the week.

The S&P 500 – which lost 2.95 per cent on Dec 19 – recovered 1.09 per cent on Dec 20 for a cumulative net loss of 1.99 per cent for the week as it closed at 5,930.85 points. The Nasdaq closed at 19,572.60 for a loss of 1.78 per cent for the week.

In Singapore, the Straits Times Index fell 1.14 per cent on Dec 20 to 3,719.93 points, translating into a 2.4 per cent slide for the week.

The market turbulence was caused by Fed chairman Jerome Powell's remarks that going forward, the central bank would "be more cautious" as it considers more adjustments to its policy in the face of sticky inflation numbers. After announcing another 25 basis-point cut in the Fed funds rate to a range of 4.25 per cent to 4.5 per cent, he hinted that only two rate cuts would be forthcoming in 2025, versus widespread market expectations for four rate cuts.

"With today's action, we have lowered our policy rate by a full percentage point from its peak, and our policy stance is now significantly less restrictive," Mr Powell said. "We can therefore be more cautious as we consider further adjustments to our policy rate."

The remarks saw 10-year Treasury yields spike to over 4.5 per cent.