The stock market is just days away from receiving the interest rate cut it so fervently desires, but optimism on that front failed to translate into an early-week surge for the Dow.
Meanwhile, former Federal Reserve Chair Janet Yellen warned of the “risks” of a “weakened” global economy.
Wall Street’s major indices tepidly entered the Monday trading session. The Dow Jones Industrial Average opened flat but managed to creep to a gain of 40.78 points or 0.15%; the DJIA last stood at 27,233.23 as of 9:42 am ET.
The S&P 500 and Nasdaq slid into decline, falling 3.75 points or 0.12% to 3,022.11 and 36.16 points or 0.43% to 8,294.05.
Stocks tilted sideways ahead of this week’s Federal Open Market Committee (FOMC) meeting, where the Federal Reserve is universally expected to execute an interest rate cut , with most traders expecting a 25-basis point reduction.
Speaking in advance of the FOMC meeting, ex-Fed Chair Janet Yellen revealed that she believes a 25-basis point interest rate cut is appropriate given the numerous threats the US economy faces.
“The global economy has weakened. I think partly it’s weakened because of conflicts over trade and the uncertainty that’s caused for businesses,” Yellen – an Obama administration appointee – said at an Aspen Economic Strategy Group, according to CNBC.
Wall Street has a complicated relationship with economic data. On the one hand, poor economic data increases the odds of a sustained cycle of Fed easing, rather than just a one-off interest rate cut. On the other, a weakening economy is itself a threat to the stock market.
Recent data dumps have presented a mixed picture of the US economy. For example, second-quarter GDP beat expectations, but bearish economists such as David Rosenberg noted that 2.1% growth is far from a comforting figure.
Of course, the picture is even bleaker worldwide, which is why Yellen believes a 25-basis point cut is warranted, despite the fact that the Dow, S&P 500, and Nasdaq have all set new all-time highs within the past several weeks.
“The United States isn’t an island,” Yellen said. “We’re part of the global economy. What happens in the rest of the world — in Europe, in Asia — affects the United States. And it’s also true that U.S. monetary policy affects conditions all around the globe.”