Source : THE AGE NEWS
By Damian Troise and Alex Veiga
US stocks are drifting in mixed trading after the Federal Reserve left its main interest alone, as was widely expected, but also warned about rising risks for the US economy.
The S&P 500 was 0.1 per cent lower in late trading, coming off a two-day losing streak that had snapped its nine-day winning run. The Dow Jones was up 160 points, or 0.4 per cent, with roughly 20 minutes remaining in trading, and the Nasdaq composite was 0.4 per cent lower. The Australian sharemarket is set to slip, with futures at 5.40am AEST pointing to a fall of 4 points at the open. The ASX added 0.3 per cent on Wednesday.
Fed chair Jerome Powell soothed investors.Credit: Bloomberg
Indexes had been modestly higher earlier in the morning, with the Dow briefly up 400 points, on hopes that the United States and China may be making the first moves toward a possible trade deal that could protect the global economy. The world’s two largest economies have been placing ever-increasing tariffs on products coming from each other in an escalating trade war, and the fear is that they could cause a recession unless they allow trade to move more freely.
The announcement for high-level talks between US and Chinese officials this weekend in Switzerland helped raise optimism, but some of that washed away after President Donald Trump said he would not reduce his 145 per cent tariffs on Chinese goods as a condition for negotiations. China has made the de-escalation of the tariffs a requirement for trade negotiations, which the meetings are supposed to help establish.
Such on-and-off uncertainty surrounding tariffs has helped create sharp swings within the US economy, including a rush of imports earlier this year to beat possible tariffs. Underneath those swings, as well as surveys showing US households are growing much more pessimistic about the future, the Fed said it continues to see the economy running “at a solid pace” at the moment.
Fed Chair Jerome Powell said that gives the central bank time to wait before making any potential moves on interest rates, even if Trump has been lobbying for quicker cuts to juice the economy.
“There’s so much that we don’t know,” Powell said. So like the rest of Wall Street and the world, the Fed is waiting to see what will actually end up happening in Trump’s trade war and whether his proposed tariffs, which were much stiffer than expected, will actually hit.
That’s particularly the case after the trade war seems to have entered “a new phase,” Powell said, where the United States is looking to conduct more talks on trade with other countries.
To be sure, the Fed also said it appreciates that risks to the economy are rising because of tariffs, which could both weaken the job market and push inflation higher.
“If the large increases in tariffs that have been announced are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth and an increase in unemployment,” Powell said.
That could ultimately put the Fed in a worst-case scenario called “stagflation,” where the economy is stagnating while inflation remains high. Such a combination is hated because the Fed has no good tools to fix it. If the Fed were to try to cut interest rates to juice the economy and help support the job market, for example, it could raise inflation further. Raising rates would have the opposite effect.
In the meantime, big US companies continue to produce fatter profits for the start of 2025 than analysts expected.
The Walt Disney Co. soared 10.4 per cent after easily beating analysts’ profit targets, raising its profit forecast and adding more than a million streaming subscribers.
Companies, though, are also continuing to warn about how uncertainty in the economy is making it more difficult for them to forecast their own finances.
Super Micro Computer, which makes servers, fell 3.3 per cent after trimming its revenue forecast for the year amid economic uncertainty. Chipmaker Marvell Technology slumped 9.4 per cent after it postponed its investor day from June to an undetermined date because of uncertainty over the economy.
Shares in Google’s parent Alphabet slumped 7.8 per cent as Apple’s company’s senior vice president of services Eddy Cue said the company is “actively looking at” reshaping the Safari web browser on its devices to focus on AI-powered search engines. Cue made the disclosure Wednesday during his testimony in the US Justice Department’s lawsuit against Alphabet. Shares of the iPhone maker traded down 2.4 per cent.
In the bond market, Treasury yields fell following the Fed’s announcement. The yield on the 10-year Treasury eased to 4.27 per cent from 4.30 per cent late Tuesday.
Markets in Europe mostly lost ground, while markets in Asia rose. Indexes rose 0.1 per cent in Hong Kong and 0.8 per cent in Shanghai after Beijing rolled out interest rate cuts and other moves to help support the Chinese economy and markets as higher tariffs ordered by Trump hit the country’s exports.
AP, Bloomberg
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