Fed's supersized rate cut paves way for synchronized global policy easing
In a pivotal move, the US Federal Reserve announced a 50-basis-point cut to its benchmark federal funds rate in September, following rate reductions in Europe, the UK, Canada and other economies that aim to unwind tighter monetary policies as inflation retreats from pandemic-era peaks. The Fed's decision, marking the first US rate cut in over four years, is expected to influence central banks globally, encouraging them to embark on or continue their rate-cutting cycles .
Economic experts have debated whether the US was not swift enough with its policy response, particularly after the release of weak employment data in August and the revision of payroll estimates for the 12 months through March 2024 by over 800,000 jobs. But the US economy has shown resilience, with robust consumer spending and a GDP growth rate of 3% in the second quarter, according to the latest estimate from the US Bureau of Economic Analysis.
As inflation continues to slow, the Fed is expected to make more rate cuts this year, leaving more room for further monetary policy easing in other economies.
The implications of the Fed's policy reversal are multifaceted. Rate cuts could compress US banks' net interest margins in the near term if assets reprice faster than liabilities. However, analysts expect banks to seize the opportunity presented by the Fed's supersized rate cut and accelerate the pace of reducing deposit costs .
Outside the US, the Fed's rate cut is expected to significantly impact the overseas lending margins of Japanese megabanks , which have expanded abroad in recent years, mainly in the US and Asia, to strengthen their investment banking and financing operations amid negative interest rates at home. About 40% of their overall outstanding loans were extended in overseas markets in the fiscal quarter ended June 30, according to the megabanks' lending data.
Further Fed rate cuts may also pose challenges for the Bank of Japan's monetary policy normalization, as they will narrow the interest rate gap between the US and Japan and strengthen the yen against the US dollar. This could slow rate hikes from the central bank, which exited its negative rate policy in March, and hinder the megabanks' plans to raise domestic lending rates.
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Deep Dives
In-depth features looking at the impact of major news developments in key industries.
Financials
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BSA/AML focus boosts number of severe enforcement actions issued to banks??
US banking regulators have so far issued 48 severe enforcement actions, surpassing the number of such actions issued for the entire 2023. Many of the actions are related to compliance with the Bank Secrecy Act and anti-money laundering rules.
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ConnectOne in 'unique' position while preparing to cross $10B threshold
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Asia-Pacific banks' debt issuance volumes rise 18% YOY in August
Asia-Pacific banks' debt issuance volumes grew more than 18% year over year in August, fueled by a surge in the issuance of local-currency denominated securities.
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Insurance
United, Cigna stocks unfazed after FTC lawsuit targets PBM subsidiaries
The US Federal Trade Commission's move comes on the heels of Cigna suing the antitrust regulator seeking the retraction of an unfavorable report on pharmacy benefits managers.
—Read more on S&P Global Market Intelligence .
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Fintech
New rules aim to define banks' role in fighting payment scams?
A set of new rules imposed by the National Automated Clearinghouse Association will take effect as soon as Oct. 1, requiring banks and credit unions to strengthen fraud monitoring and process refund requests faster.
—Read more on S&P Global Market Intelligence .
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Real Estate
US housing market: Home prices climb to new record high in July
The pace of price gain moderated in July, with the S&P CoreLogic Case-Shiller US National Home Price NSA Index rising 5.0% year over year, down from a 5.5% annual increase in the previous month.
—Read more on S&P Global Market Intelligence .
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Credit and Markets
S&P 500 rally stretches to 5 months as broader market rises in September
Major stock indexes gained in September, with the S&P 500 up 2% from the end of August.
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Energy and Utilities
US energy, climate law expected to survive across multiple election scenarios
While many forecasters see divided government as the most likely outcome of the 2024 US elections, sweeping changes to federal energy policy could prove difficult to enact even if Democrats or Republicans win a governing trifecta in November.
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Hyperscalers consider gas PPAs as power producers await clarity on nuclear deals
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Technology, Media and Telecommunications
AI poses risks, opportunities for election, campaign security
The AI-fueled proliferation of misinformation online has raised numerous questions, including who is responsible for preventing its further spread and how big of a risk it represents, especially in an election year.
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Metals and Mining
US nuclear restarts to add pressure to uranium supply-demand tightness
Recent reactor restart announcements mark a significant course change in the US, where nuclear was on the decline until recently, analysts said.
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The Week in M&A
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The Big Number
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