FOMC Lowered Interest Rates by 50 Basis Points

The Federal Open Market Committee (FOMC), by an 11-1 vote, moved to lower the federal funds target rate range by 50.0 basis points to 4.75%-5.00%. The lone dissenting vote was by Governor Michelle Bowman, who preferred a 25.0-basis-point reduction. The FOMC’s statement indicated that economic activity has continued to expand at a solid pace. Job gains have slowed, and while the unemployment rate has advanced, it has remained low. In further support of the rate reduction, the FOMC noted that it has gained greater confidence that inflation is moving sustainably toward the 2.0% target and that the risks to achieving its employment and inflation goals are roughly in balance. Further adjustments to the target range for the federal funds rate will be based on an assessment of incoming data, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Equity Markets Increased Off Interest Rate Cuts

The interest rate decrease by the Federal Reserve helped drive stocks higher last week. Each of the major benchmark indexes closed higher, led by the Russell 2000. Communication services, energy and utilities were the best-performing market sectors, while consumer staples, health care and real estate lagged. Gold prices surged past $2,600.00 per ounce, hitting a new record high on Friday. Crude oil prices advanced for the second straight week, while the dollar retreated following the drop in interest rates.

Eye on the Week Ahead

The final estimate for second quarter GDP is out this week. The prior estimate had the economy expanding at an annualized rate of 3.0%. The report on Personal Income and Outlays for August is also available this week. July saw personal income rise 0.3%, while personal consumption expenditures advanced 0.5%. Consumer prices rose 0.2% for July and 2.5% over the last 12 months ended in July.