Stock market soars as Waller suggests possible interest rate reductions starting July
Stock market rose on Friday as hints of potential Federal Reserve rate cuts in July sparked excitement among investors.
S&P 500 (+0.5%), Dow Jones Industrial Average (+0.4%), and Nasdaq Composite (+0.7%) enjoyed a bit of growth. The 10-year Treasury yield increased by 3 basis points to 4.42%, while the 2-year yield remained steady at 3.95%.
Today marked the second triple witching event of the year, where contracts linked to stock options, stock index futures, and stock index options expire. Known for causing volatility, equity markets have been on edge.
Federal Reserve Governor Christopher Waller suggested a potential rate cut in July, stating that he sees little risk of tariffs fueling inflation and signaling that the central bank could act as early as July.
President Donald Trump is expected to make a decision regarding a possible U.S. strike on Iran within two weeks. This potential conflict with Israel has sent shivers down the spines of investors, but some relief was felt after news of potential dialogue between the U.S. and Iran emerged.
Deutsche Bank's Jim Reid observed, "Markets are recovering a bit this morning after White House spokeswoman Leavitt last night said that Trump had dictated a message saying that 'based on the fact that there's a substantial chance of negotiations that may or may not take place with Iran in the near future, I will make my decision whether or not to go within the next two weeks.'"
This two-week period of uncertainty is sure to keep markets on edge, but investors seem optimistic that the Middle East conflict will remain localized and not spill over into the global economy.
Wall Street closed little changed on Wednesday after Federal Reserve Chair Jerome Powell indicated a wait-and-see approach due to uncertainties surrounding tariffs and their impact on monetary policy actions.
The Fed left its policy rate at 4.25-4.50% during its last meeting in April. The U.S. stock market was closed on Thursday for Juneteenth, the newly adopted market holiday in 2022.
The Philly Fed Manufacturing gauge stalled at -4 in June, missing expectations. The May U.S. Leading Index is forecasted to come in at -0.1% M/M. The Fed's balance sheet update is scheduled for later in the day.
More on markets
- Fed's Economic Downturn Concerns Mount
- Global Uncertainties Dominate Fed's Agenda
- Fed Flirts with Precarious Balancing Act
Interestingly, the Federal Reserve's potential rate cuts in July 2025 have stirred mixed expectations. A rate cut could have positive effects on the stock market by lowering borrowing costs, but it also raises questions about inflation and labor market conditions.
Fed officials, like Mary Daly and Christopher Waller, express differing views about the timing and necessity of rate cuts. While Daly supports a steady policy stance for now, Waller suggests a potential cut in July could be appropriate given the stable economic data and temporary inflation effects from tariffs.
The Fed's economic projections call for gradual growth and inflation moderation but acknowledge significant uncertainties over the next six to twelve months. The Fed's next moves in July or September will largely depend on incoming inflation reports, labor market data, and broader economic trends.
Thus, investors must carefully weigh the impact of potential rate cuts on the stock market and other economic indicators. The Fed's sensitivity to inflation signals and labor market softness will play a crucial role in shaping the Fed's decisions.
- Although the Federal Reserve's potential rate cuts in July 2025 have stirred mixed expectations, some investors find optimism in the possibility of lower borrowing costs boosting the stock market.
- As the Fed mulls over its next moves in July or September, investors closely monitor economic indicators such as inflation reports, labor market data, and broader economic trends to assess the potential impacts on the stock market and the economy at large.
