Economic Indicators Point to Steady Growth, Impacting Interest Rates
The 10-year Treasury yield surged past the 4.5% mark, a significant milestone indicating increased market volatility. This rise is attributed to robust economic data, which suggests the Federal Reserve’s plan to slow down rate cuts in 2025 may be justified. The yield currently stands at 4.536%, while the 2-year Treasury yield dipped to 4.325%.
Jobless Claims and GDP Growth: A Positive Outlook
Fresh jobless claims data revealed a decline to 220,000 for the week ending December 14, surpassing economists’ forecasts of 230,000. Additionally, the U.S. gross domestic product (GDP) grew at a 3.1% rate in the third quarter, exceeding expectations and marking a 0.3 percentage point increase from previous estimates. These readings indicate a steady economy, supporting the Fed’s decision to reduce interest cuts.
Federal Reserve’s Stance on Interest Rates
The Federal Reserve cut interest rates by a quarter-percentage point on Wednesday, its third consecutive reduction. However, Chair Jerome Powell adopted a hawkish tone, raising the inflation forecast and signaling only two possible rate cuts in 2025, down from the four predicted in September. As a result, the likelihood of another rate cut in January has decreased to under 10%, according to fed funds futures trading.
Market Implications
The recent economic data and the Fed’s stance on interest rates have significant implications for the market. With the economy showing signs of stability, investors may expect fewer interest cuts in the future, leading to a potential shift in market dynamics. As the situation continues to unfold, it’s essential to stay informed about the latest developments and their impact on the economy.
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