Wall Street continues to hover near record highs as investors bet on a Federal Reserve interest rate cut at its upcoming meeting. Mixed U.S. economic data, showing both cooling inflation and a softening labor market, has cemented Fed rate cut expectations among traders. The S&P 500 gained 0.3% early Thursday after two consecutive record-setting sessions, while the Dow Jones Industrial Average added 95 points and the Nasdaq rose 0.4%.
Why Fed Rate Cut Expectations Are Driving Markets
Treasury yields remained stable following fresh reports on inflation and unemployment, reinforcing confidence that the Fed will ease policy. Most economists anticipate that the central bank will deliver its first rate cut of the year next week.
The Federal Reserve has a dual mandate: control inflation and maintain a healthy labor market. Inflation is still above the Fed’s 2% target, but recent data revealed that hiring has slowed more than previously believed. This balancing act—slowing the economy enough to justify a rate cut but not so much that it sparks a recession—has become the foundation of Fed rate cut expectations in 2025.
Inflation and Labor Market Data in Focus
Markets were encouraged by a report Wednesday showing that wholesale inflation unexpectedly slowed in August. Traders interpreted this as another sign that the Fed has room to cut rates without risking runaway price growth.
Meanwhile, labor market data revealed that job creation has cooled significantly in recent months, with last year’s figures revised lower. Companies appear more cautious about future sales, limiting their hiring. This slowdown has amplified concerns inside the Fed and increased pressure to act.
Investors now believe inflation readings between now and the Fed’s meeting will be the final hurdle. If consumer-level inflation remains moderate, Fed rate cut expectations will almost certainly translate into policy action.
Corporate Movers Amid Rate Speculation
While broad indexes benefited from Fed optimism, individual stocks showed notable moves. Shares of Opendoor Technologies (NASDAQ:OPEN) surged 36% after naming Kaz Nejatian, Shopify’s COO, as its new CEO. Co-founders Keith Rabois and Eric Wu also rejoined the board, with Rabois stepping in as chairman.
In contrast, shipping giants faced pressure. FedEx (NYSE:FDX) dropped 1.3% and United Parcel Service (NYSE:UPS) fell 2.1% after Bank of America downgraded both stocks, citing headwinds in the delivery sector.
Global Markets React to Fed Rate Cut Expectations
Global equities also reflected investor optimism around easier U.S. monetary policy. In Europe, Germany’s DAX gained 0.3%, Britain’s FTSE 100 rose 0.5%, and France’s CAC 40 advanced 0.9%.
Asian markets posted mixed results. Japan’s Nikkei 225 jumped 1.2% to 44,372.50, powered by an 8.3% rally in SoftBank Group shares. Data showed Japanese producer prices rose 2.7% year-over-year in August, slightly higher than the prior month.
Chinese stocks were split: Hong Kong’s Hang Seng index fell 0.4%, but the Shanghai Composite soared 1.7% as semiconductor shares rallied. Semiconductor Manufacturing International Corp gained more than 6%, Hua Hong Semiconductor added 3.8%, and Cambricon Technologies—often referred to as “China’s Nvidia”—climbed 9%.
Elsewhere, South Korea’s Kospi rose 0.9%, India’s Sensex edged up 0.2%, and Taiwan’s Taiex gained 0.1%. Australia’s S&P/ASX 200 slipped 0.3%.
Outlook: Will the Fed Deliver the Cut?
Fed rate cut expectations are now deeply priced into markets. Traders see next week’s Fed meeting as pivotal for confirming the path of monetary policy into 2025. If the central bank cuts rates as anticipated, it could extend Wall Street’s record run, offering relief to corporate borrowers and consumers.
However, risks remain. Inflation could flare unexpectedly, or labor market weakness could deepen into recessionary territory. For now, markets are betting that the Fed will successfully navigate this delicate balance, keeping stocks near historic highs.
Featured Image: Freepik
