Fed Officials Prefer a Balanced Approach to Rate Cuts

Rates fall slightly while equities climb to new all-time highs. Swap rates reversed course today after rising 40+ basis points from 2024 lows (reached in mid-September). The short end of the curve fell 3-4bps while longer term rates dropped 1-2bps. Meanwhile, Nvidia powered a broader equity rally today, driving the S&P 500, DJIA, and NASDAQ to all-time highs. Nvidia rose over 4% after its partner, Foxconn, reiterated that there is high demand for Nvidia chips.  

Pair of Fed Presidents signal preference for smaller rate cuts. New York Fed President John Williams said that it is appropriate for the Fed to ease monetary policy “over time” given the positive state of the economy. He elaborated by saying, “The current stance of monetary policy is really well positioned to both hopefully keep maintaining the strength that we have in the economy and the labor market, but also continuing to see that inflation comes back to 2 percent.” Similarly, Boston Fed President Susan Collins argued that the Fed must preserve current economic conditions with “A careful, data-based approach to policy normalization.” Collins also noted her increased confidence that inflation will return to target in a “timely” manner.

US trade deficit falls to recent lows. Data released today showed that the US trade deficit fell 10.8% from July’s $78.9 billion shortfall to $70.4 billion in August. The results marked the lowest deficit since March 2024 and the steepest monthly decline since March 2023. Imports largely fell due to declining oil prices while higher capital goods and auto shipments boosted exports. High Frequency Economics chief economist Carl Weinberg said, “This report says that net trade supports GDP growth in August… putting together July and August figure suggests that net trade is flat so far in the third quarter, making no significant addition or subtraction to GDP growth so far.”