Fed officials’ new interest rate outlook could roil stocks

As markets closed Wednesday, the conventional wisdom went something like this: The Federal Reserve may cut interest rates just once this year.

And a number of investors weren’t thrilled. At the end of 2023, Wall Street was buzzing with as many as seven rate cuts in 2024.

The result was a concern after the Fed announced it was holding its key rate at 5.25% at 5.5% and was in no rush to cut the rate.

But by the close, three indexes closed the day with records: the Standard & Poor’s 500 Index, with its first close above 5,400; The Nasdaq Composite and the Nasdaq 100 Index. The Dow Jones Industrial Average fell 35 points.

The whole of the shutdown was good news. And of course, Fed Chairman Jerome Powell continued to insist that the domestic economy is doing quite well. He said at his press conference after the Fed released its rate decision, “We have a good strong labor market.”

However, he could not deliver a rate cut – in fact none was expected.

More importantly, he could not give an exact timetable for a rate cut. And he seemed a little, well, upset about the situation.

WASHINGTON, DC – SEPTEMBER 20: Federal Reserve Chairman Jerome Powell left interest rates unchanged in June.

Chip Somodevilla/Getty Images

What the Fed wants is for inflation to fall steadily toward 2% a year. This means that it moves steadily lower from month to month towards the goal. At best, Powell, the Fed’s statement and its point-by-point presentation can only suggest that it may take until late 2024 and into 2025 to get it.

The bulleted presentation is part of a series of forecasts the Fed releases each quarter to show how the central bank is viewing the economy, jobs, interest rates and other measures.

The dot chart shows how the 19 members of the Federal Open Market Committee, who vote on tariffs and other issues, are seeing the current situation and the future.

Closing requires some thought

You can see the frustration in the closing details.

The Dow rose nearly 373 points after the open on the upbeat Consumer Price Index report. But it lost all that profit and ended the day with a small loss.

Home buyers probably cheered because mortgage rate quotes fell in the CPI report. The rate on a 30-year loan fell below 7% for the first time since March, according to Mortgage News Daily.

Two more points:

While the S&P 500, Nasdaq and Nasdaq 100 closed at record highs, all three gave back roughly a third of their intraday gains from the close.
Finally, the S&P 500, Nasdaq and Nasdaq 100 are now technically overbought, with their relative strength indices above 70.

RSI is a measure of momentum. If a stock or, in this case, an index rises too quickly, it can become vulnerable to a selloff, especially after the RSI level reaches 75. Above 80 means a selloff is imminent.

The Nasdaq RSI at Wednesday’s close was above 76. The Nasdaq 100 RSI was near 76. The S&P was near 72.

How did these indices get so high? Tech stocks obviously had a lot to do with it, especially big tech stocks.

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