Waiting for signs of a Fed rate cut
Wall Street investors left for Labor Day weekend pleased about the prospects of an interest rate cut, but they’re likely to come back wanting more evidence that rates are indeed about to come down.
The market has been in better spirits, for the most part, over the last two weeks than in midsummer, when stocks tumbled as fears intensified about a deepening credit crunch. Although the Federal Reserve on Aug. 17 lowered the discount rate -- the rate it charges commercial banks for loans -- Wall Street’s worries haven’t been completely assuaged.
The Dow Jones industrials and Standard & Poor’s 500 index lost modest ground last week amid another bout of volatility. The Nasdaq composite gained for the five days.
Fed Chairman Ben S. Bernanke has not come right out and declared that a cut in the benchmark federal funds rate will happen, but many investors believe he telegraphed it Friday by saying the central bank would “act as needed.”
Overall, traders who bet on the Fed’s next move are counting not only on a quarter-point rate cut at policymakers’ Sept. 18 meeting but also on a similar move in October.
The Fed has not reduced the federal funds rate since 2003, when it declined from a low 1.25% to 1%. Starting in 2004, the central bank made gradual rate increases until the summer of 2006, when it began holding the benchmark rate at 5.25%.
Investors will be curious to see what policymakers at the Bank of England and European Central Bank do with interest rates when they meet separately Thursday. Many analysts say the two banks are likely to hold rates steady, which would give the Fed more leeway to cut its own rate.
Investors also want to know whether the U.S. job market, which has been one of the more stable parts of the economy, is holding up.
The Labor Department’s report comes out Friday. Economists surveyed by Thomson Financial believe that nonfarm payrolls rose in August, that the unemployment rate held steady at 4.6% and that hourly earnings ticked up 0.3%.
Friday’s job report is probably the most anticipated of the four-day week, but there will be some notable pieces of data coming in before then.
Wall Street will return to work Tuesday and read the Institute for Supply Management’s measure of U.S. manufacturing. It is expected to have weakened slightly in August compared with July.
On Wednesday, investors will examine the National Assn. of Realtors’ report on pending sales of existing homes, as well as the Fed’s so-called beige book report, which details conditions in various parts of the country.
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At a glance
Today
Labor Day. U.S. financial markets are closed.
Tuesday
Automakers release their sales figures for August.
Commerce Department reports on construction spending for July.
Treasury bill auction.
Institute for Supply Management issues its report on activity in the manufacturing economy for August.
Automakers release their sales figures for August.
Wednesday
Federal Reserve releases its “beige book” survey of regional economic conditions.
Thursday
The nation’s largest retailers announce their sales figures for August.
Labor Department issues revised reports on productivity and costs for second quarter of 2007.
Labor Department reports on weekly jobless benefit claims.
Freddie Mac reports on mortgage rates.
Institute for Supply Management issues its report on activity in the non-manufacturing economy for August.
Quarterly earnings reports due from SAIC, Campbell Soup and Hovnanian Enterprises.
Friday
Labor Department reports on employment for August.
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Sources: Times staff and wire reports
