[New York Stocks Close Mixed on Powell's Hawkish Remarks... "September Rate Path Uncertain"]

Key Rate Held Steady at 4.25~4.5% Annually
Powell: "No Decision Made on September Rate Path"
Probability of September Hold Jumps from 18% to 34% in One Day

The three major indices of the New York Stock Exchange closed mixed on July 30 (local time). Although the US Federal Reserve (Fed) kept its benchmark interest rate unchanged as expected, more hawkish (favoring monetary tightening) remarks from Fed Chair Jerome Powell lowered expectations for a rate cut and pressured the stock market. As market expectations for a rate cut in September declined, Treasury yields fell.

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On this day at the New York Stock Exchange, the blue-chip Dow Jones Industrial Average closed at 44,461.28, down 171.71 points (0.38%) from the previous trading day. The large-cap S&P 500 Index fell 7.96 points (0.12%) to 6,362.9, while the tech-heavy Nasdaq Index rose 31.38 points (0.15%) to close at 21,129.67.

The Fed decided to keep the federal funds rate unchanged at 4.25?4.5% per annum, according to the policy statement released immediately after the Federal Open Market Committee (FOMC) regular meeting. This marks the fifth consecutive decision to hold rates steady.

At the press conference held after the FOMC meeting, Chair Powell addressed the possibility of a rate cut in September, saying, "We have not made any decisions," and added, "We will consider all additional information we receive by then." The market, which had hoped for hints about a September rate cut, interpreted Powell's cautious remarks as hawkish. Powell assessed that while there are downside risks in the labor market, it "appears solid," and noted that inflation still remains above the target level.

Brett Kenwell, US investment analyst at eToro, said, "The Fed will continue to rely on economic data at the next meeting," and added, "To cut rates, there needs to be confidence that the recent rise in inflation is a one-off event and that it will continue to decline over the coming months or quarters." He further emphasized, "The labor market should also not show any noticeable weakening."

Market expectations for a rate cut have receded. According to the CME FedWatch tool from the Chicago Mercantile Exchange, the probability of rates being held steady in September jumped from 18% the previous day to 33.8% as of now.

As investors' expectations for a rate cut have diminished, Treasury yields are on the rise. The yield on the 10-year US Treasury note, the global benchmark for bond rates, rose by 3 basis points (1bp = 0.01 percentage points) from the previous session to 4.37%. The yield on the 2-year US Treasury note, which is sensitive to monetary policy, increased by 6 basis points to 3.94%.

The US economy also continues to show solid momentum, suggesting that there is little urgency for a rate cut. According to the US Department of Commerce, the preliminary estimate for real gross domestic product (GDP) in the second quarter increased by an annualized 3.0% compared to the previous quarter. This is a significant rebound from the 0.5% contraction in the first quarter and exceeds the market consensus of 2.3% compiled by Dow Jones. The key factors behind the rebound in growth were a decline in imports and a recovery in consumption. Although exports fell by 1.8%, imports plunged by 30.3% as companies completed inventory restocking in the first quarter. As the trade balance improved, the contribution of net exports to GDP reached 5 percentage points. Real consumer spending, which accounts for about two-thirds of total GDP, increased by 1.4%, a notable rise from 0.5% in the first quarter.

By stock, Microsoft (MS) rose 0.13%. Meta, the parent company of Facebook, fell 0.68%. Both companies reported earnings after the close that exceeded market expectations. Visa and Starbucks also posted better-than-expected results, but declined by 0.11% and 0.22%, respectively.