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U.S. equity futures powered firmly higher in early Thursday trading, putting the S&P 500 on pace for a fresh record high, following a big rate cut from the Federal Reserve and forecasts that suggest a soft landing for the world’s biggest economy.
The Fed’s first rate cut in more than four years, which lowered its key lending rate by half a percent, to between 4.75% and 5%, ended one of the longest stretches of no policy change on record last night as Chairman Jerome Powell noted confidence in the inflation outlook and concerns tied to the job market.
Still, Powell insisted that the economy was in “good shape” despite some labor market cooling, hinting that Wednesday’s rate cut, and the two more reductions forecast in the Fed’s Summary of Economic projections, would allow for a so-called soft landing that tames inflation without inducing recession.
Fed Chairman Jerome Powell ended one of the longest stretches of no policy changes on record with the first rate cut in more than four years.
Andrew Harnik/Getty Images
“We’re committed to maintaining our economy’s strength by supporting maximum employment and returning inflation to our 2% goal,” Powell told reporters in Washington.
“If you look at the growth in economic activity data – the retail sales data that we just got, second quarter GDP – all of this indicates an economy that is still growing at a solid pace, so that should also support the labor market over time,” he added.
The outsized cut, while anticipated by Wall Street, still caught some corners of the market by surprise, with Treasury bond yields nudging higher amid concern that the Fed’s efforts to support growth could reinflate and already solid economy.
Related: Fed delivers on big rate cut, signals focus on cooling job market
Benchmark 2-year note yields were last marked 4 basis points higher than their pre-decision levels at 3.579% in overnight trading, while 10-year note yields were pegged at 3.692%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was last marked 0.02% at 100.565.
“The Fed took a bold step, considering that services inflation is still much higher than average and that the US economy depends on China to continue deflating goods,” said George Lagarias, chief economist at London-based Forvis Mazars. “A ‘double cut’ necessitates further aggressive moves, and leaves little room to manoeuvre in case prices rebound.”
Wall Street’s reaction, however, looks far more straight-forward, with the Fed committed to aggressive policy easing, the economy growing at a 2.9% clip according to the Atlanta Fed’s GDPNow tracker, and corporate earnings forecast to rise both into the end of the year and over the whole of 2025.
The S&P 500 is likely to open at a fresh record high Thursday, with futures contracts tied to the benchmark indicating an opening bell gain of around 84 points.
Futures tied to the Dow Jones Industrial Average, meanwhile, are priced for a 455 point advance with the tech-focused Nasdaq called 388 points to the upside.
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In overseas markets, Britain’s FTSE 100 was marked 1.16% higher in London ahead of the Bank of England’s September rate decision, expected at 7:00 am Eastern time, while the regional Stoxx 600 benchmark rose 1.08% in Frankfurt.
Overnight in Asia, the Nikkei 225 closed at a two-week high after rising 2.13% on the session, ahead of tomorrow’s Bank of Japan rate decision.
The region-wide MSCI ex-Japan index, meanwhile, was marked 1.24% higher into the close of trading.
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