Brisk Pace for GDP

On October 12, 2022, the S&P 500 Index hit a cyclical low. In hindsight, that marked the end of the 2022 bear market. Fast forward three years, and the current bull market has now been running for three years.

Historically, US government shutdowns have had minimal impact on the stock market. Let’s review the graphic below. Since 1976, government shutdowns of varying lengths have had little effect on stocks, as measured by the S&P 500 Index.

A couple of weeks ago, the Federal Reserve cut its key rate, the fed funds rate, by a quarter-percentage point to 4.00-4.25%. It’s the first rate cut since last December. So, is this one and done, or will there be a series of rate reductions? A speech delivered last week by Fed Chief Powell wasn’t overly dovish, but the Fed meets two more times this year, and Powell left the door open to at least one more rate cut in 2025.

To virtually no one’s surprise, the Federal Reserve slashed the target on its key interest rate—the fed funds rate—at the conclusion of its meeting on Wednesday. The only question regarding the decision was whether the Fed would cut by a quarter point (25 basis points [bp]; 1 bp = 0.01%) or 50 bp. They opted for 25 bp and a new range of 4.00-4.25%.

The only thing that might have been standing in the way between the Federal Reserve and a rate cut this week was last Thursday’s release of the Consumer Price Index (CPI). While the inflation figures weren’t particularly soft, August’s data didn’t reflect a sharp rise in prices either, all but guaranteeing that the Fed will move at Wednesday’s meeting.