Week of 08/19-08/23 The FED states "The Time Has Come", Interest Rate Cut Incoming

Stocks rose on Friday as the Federal Reserve Chair Jerome Powell stated "the time has come" to begin cutting interest rates. This has been the strongest signal from the FED so far, indicating that the central banking system is confident to start an easing cycle to boost the economy. Powell later commented that the final decision will be made after reviewing pending economic data and analyzing risks. The markets quickly shifted to price in four 25 basis point rate cuts by the end of 2024. These forecasts include a 35% chance of the FED implementing an initial 50 basis points cut in September. Nvidia was the highlight of the S&P 500 this week as it recovered some lost territory by crossing over the $130 per share mark. Nvidia has earnings next week and investors are pricing it in just below the all-time highs at $138 per share. NVDA stock has positioned itself into one of the largest equities in the stock market and its company earnings, regardless of the outcome, will definitely impact the overall market. Company earnings continued this week with the main highlights being Palo Alto Networks, CAVA Group, Uber, Ross Stores, Peloton, Lowes, Toll Brothers, Target, Macys, and Zoom.

What effect do interest rate cuts have in the economy?

1. Encouraging borrowing and spending: Lower interest rates make borrowing cheaper, leading to increased consumer spending on items like homes, cars, and other goods. This can stimulate economic growth by boosting demand.

2. Lowering the cost of borrowing for businesses: Reduced interest rates can make it more affordable for businesses to borrow money for expansion, investment in new projects, and hiring more employees. This can lead to increased business activity and job creation.

3. Stimulating the housing market: Lower interest rates can make mortgages more affordable, encouraging more people to buy homes. This can increase housing demand, driving up home prices, and supporting the construction sector.

4. Asset price inflation: Lower interest rates can lead investors to seek higher returns in riskier assets like stocks and real estate, potentially inflating asset prices. This can create wealth effects and boost consumer spending.

5. Weakening the currency: Lower interest rates can make a country's currency less attractive to investors, leading to a depreciation in the exchange rate. This can benefit export-oriented industries by making exports cheaper and more competitive in the global market.

However, it's important to note that the impact of interest rate cuts can vary depending on the overall economic conditions, the level of existing debt, and other factors in the economy.