US consumer confidence at its lowest level in twelve years - Fed comment dampens interest rate expectations
Quick Look
- US consumer confidence falls to its lowest level in 12 years as rising bond yields weigh on markets.
- A reassuring comment from New York Fed Chairman John Williams cut expectations for a rate hike in October from nearly 70 percent to 51 percent.
- However, other Fed officials such as Michael Barr and Austan Goolsbee cautioned against further interest rate hikes and warned against "playing with fire" if inflation remains high.
AI-generated summary
Why It Matters
The U.S. economy is showing mixed signals: The labor market remains relatively strong with job openings declining, while consumer confidence falls to its lowest level in nearly 12 and a half years. The Federal Reserve is caught between the need to control inflation and the risk of stifling economic growth through high interest rates.
US consumer confidence is at its lowest level in twelve years. Rising bond yields are also unsettling investors. However, a cautionary comment from a Fed banker immediately gives rise to hope that a new interest rate hike may not occur in October.
Fears of persistently high interest rates have weighed on Wall Street. The Dow Jones index of standard stocks closed 0.3 percent lower at 51,349 points. The broader S&P 500 fell 0.2 percent to 7,670 points, and the technology exchange Nasdaq index lost 0.1 percent to 26,797 points.
Rising yields on the US bond market had previously weighed on share prices. The yield on ten-year government bonds temporarily climbed to 5.293 percent, the highest level since June 2007. The 30-year paper reached a high since June 2002 at 5.6206 percent. During trading, the stock markets contained their losses as yields fell slightly again and the head of the US Federal Reserve in New York, John Williams, explained that the Fed had time to weigh the data before the next interest rate move. In addition, oil prices fell.
Williams' comments caused expectations of a rate hike in October to fall from almost 70 percent to just over 51 percent, according to the CME's FedWatch tool. However, other central bankers took a harsher tone: Fed Governor Michael Barr signaled the need for further action, while the head of the Chicago Fed, Austan Goolsbee, warned that it would be "playing with fire" to keep inflation above the target value for years.
Consumer price index in focus
Fresh economic data painted a mixed picture of the US economy. While the number of job vacancies fell more than expected to around 7.08 million in August, consumer confidence fell to its lowest level in almost twelve and a half years in September. Investors are now looking forward to Wednesday's personal consumption expenditures (PCE) price index and Friday's labor market report for further clues on interest rates.
When it came to individual stocks, the focus was on stocks from the area of artificial intelligence (AI). The AI company Anthropic's prospectus revealed that the company is aiming for a valuation of more than two trillion dollars. Meta shares rose 3.3 percent, even though rival OpenAI introduced new AI agents that are seen as competition to Meta's new product Muse.
The used car dealer CarMax recorded a share price increase of 4.7 percent after an increase in sales and profits in the second quarter. The shares of the credit checker FICO, on the other hand, fell by 26.5 percent. The regulator FHFA had previously announced that government-backed mortgage lenders Fannie Mae and Freddie Mac would switch to a uniform pricing grid. The move could threaten FICO's longstanding dominance in mortgage credit scoring. FHFA CEO Bill Pulte has repeatedly accused FICO of keeping costs unnecessarily high for consumers.
What to Watch
AI outlook — possibilities, not facts
The Federal Reserve is unlikely to raise interest rates in October based on current data and dovish communication from officials like John Williams.
Likely · Within weeks
FICO stock will continue to be under pressure in the near term until there is clarity on the impact of Fannie Mae and Freddie Mac's planned uniform pricing grids.
Likely · Within weeks
Open Questions
- How will consumer confidence develop in the coming months, particularly given the high cost of credit?
- Despite the mixed data, will the Federal Reserve ultimately be forced to raise rates again in October or later?
- How will the proposed changes at mortgage lenders Fannie Mae and Freddie Mac change the credit rating market in the long term?
- Can AI companies like Anthropic actually achieve their extremely high valuation targets, or are these exaggerated expectations?
