On October 3, 2024, the Federal Reserve building in Washington was the backdrop for the latest developments in US economic indicators. This report is part of CNBC's Daily Open, designed to inform investors around the world about major market updates. To stay informed you can sign up to the newsletter.
Highlights
American inflation trend upwards
In October, the overall inflation rate in the United States reached 2.6%, in line with market expectations. Core inflation, which excludes food and energy price volatility, remained stable at 3.3%. This overall figure exceeds the Federal Reserve's target, potentially complicating its monetary policy easing plans.
Mixed market responses following inflation data
Following the inflation report, US markets traded largely within tight ranges. The S&P 500 and Dow Jones Industrial Average posted modest gains of 0.02% and 0.11%, respectively, while the Nasdaq Composite posted a slight decline of 0.26%. Asian markets also showed mixed results, with Hong Kong shares falling more than 1%.
Chinese AI startup expands capabilities
Beijing-based Shengshu Technology announced improvements to its text-to-video conversion tool, Vidu, which will now generate videos by stitching images, building on its existing functionality that creates 8-second clips from written instructions. In contrast, OpenAI's Sora AI model, which can produce one-minute videos from text, has not yet seen a public release.
AMD announces workforce reductions
Chipmaker AMD is set to lay off around 1,000 employees, or 4% of its workforce, as part of a strategy to strengthen its position in the competitive AI chip market, currently led by Nvidia. According to a document filed with the U.S. Securities and Exchange Commission, AMD employed about 26,000 people at the end of the previous year.
Wells Fargo advises caution on Trump-related investments
Investment in what is called the “Trump trade,” centered on companies tied to Donald Trump's campaign promises, has surged. However, the Wells Fargo Investment Institute warns that these investments may not produce the expected returns.
Reflecting on the current economic landscape, Shakespeare's famous phrase about life as a stage resonates with evolving roles in U.S. politics and economics. With inflation data consistent with expectations, the stage appears set for a potential rate cut in December, which could bring the federal funds rate to the target range of 4.25%-4.5%, as outlined in the September Fed “dot plot”.
Notably, the October figure marks the first increase in overall inflation since March, as the 2.6% figure exceeds the Fed's 2% target. Looking ahead to 2025, US President Joe Biden will leave his takes office on January 20, allowing President-elect Donald Trump to implement his agenda, which includes promises of tax cuts and tariffs.
As the political landscape changes, Federal Reserve Chair Jerome Powell may face increasing pressure. The Fed had forecast further rate cuts totaling 100 basis points by the end of 2025 and an additional 50 basis points by the end of 2026. However, economists warn that Trump's policies could be inflationary, particularly if he were to achieve control of both houses of Congress. allowing him to implement his proposals.
This scenario raises the possibility that the Fed will have to reevaluate its easing strategy if inflation rises during a second Trump term. The prospect of a “higher for longer” interest rate environment could once again become a reality, influencing both economic policy and market dynamics.
