The Federal Reserve announced a 25 basis point reduction in the federal funds rate target range to 4.5%-4.75%, marking the second cut of the year and signaling a shift towards a more accommodative monetary policy. This adjustment follows a 50 basis point cut in September and is the second reduction since March 2020.
Following the rate cut, U.S. stock indices showed varied performance. The Dow Jones Industrial Average closed flat, but the S&P 500 and Nasdaq Composite, alongside major tech stocks like Nvidia (NVDA, Financial) and Amazon (AMZN), reached record-high closing levels. Notably, the Nasdaq China Golden Dragon Index surged over 4% at one point, highlighting strong performance in tech and AI-related stocks.
The Fed's decision aligns with market expectations, aiming to support U.S. economic growth. The Federal Open Market Committee (FOMC) voted unanimously for the rate cut, noting a balanced risk in achieving employment and inflation targets while acknowledging economic uncertainties.
Despite some progress in achieving its inflation goals, the FOMC removed previous statements expressing confidence in reaching a 2% inflation rate. Adjustments were also made regarding the employment market’s state, describing a general easing since earlier in the year, despite a low unemployment rate.
Fed Chair Jerome Powell indicated that the economy remains robust and that labor markets are not the source of inflation pressures. He also mentioned potential changes in monetary policy pace and goals, with no clear decision yet on future actions.
Quilter Investors analyst Lindsay James pointed out that future rate cuts are less certain than expected due to volatile employment data and political factors affecting outlook.
Data from the U.S. Bureau of Labor Statistics showed unexpectedly strong labor cost growth in the third quarter, with nonfarm unit labor costs increasing at a 1.9% annual rate, exceeding expectations and potentially heightening inflation pressures.
U.S. technology giants saw broad gains, with the Wind data showing a 2.06% increase in the U.S. tech giants index. Meta rose over 3%, Tesla by more than 2%, Alphabet exceeded 2%, Nvidia was up more than 2%, Apple increased by over 2%, Amazon rose by more than 1%, and Microsoft up by more than 1%.
However, energy stocks mostly declined; Exxon Mobil edged up 0.12%, Chevron fell 0.58%, ConocoPhillips dropped over 1%, Schlumberger decreased by more than 1%, and Occidental Petroleum declined by 0.35%.
The Nasdaq China Golden Dragon Index climbed 3.50%, with intraday gains surpassing 4%.
China's yuan also strengthened significantly against the U.S. dollar, with both onshore and offshore rates showing significant increases.
Commodity markets saw surges in gold and oil prices, with spot gold prices surpassing $2,700 per ounce.
Looking ahead, Scott Helfstein, Global X ETFs' Head of Investment Strategy, advises investors to remain cautious regarding geopolitical news, as such events can lead to significant asset price fluctuations; however, fundamentals tend to prevail over time.
