Stocks are jumping after two Fed officials signal rate cuts are coming - 'it pays to act quickly'

FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., June 4, 2019. REUTERS/Brendan McDermidTraders work on the floor at the NYSE in New YorkReuters

  • World stocks jumped on Friday after comments from two Federal Reserve officials cemented traders' expectations of a cut to interest rates later this month.
  • "You don't need to wait until things get so bad to have a dramatic series of rate cuts," Fed Vice Chair Richard Clarida said on Thursday.
  • "When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress," New York Fed chief John Williams said.
  • View Markets Insider's homepage for more stories.

Global stocks jumped on Friday after comments from two Federal Reserve officials cemented traders' expectations of a cut to interest rates later this month, shifting their debate to whether it will be 25- or 50-basis-point reduction.

"You don't need to wait until things get so bad to have a dramatic series of rate cuts," Fed Vice Chair Richard Clarida told Fox Business Network on Thursday.

New York Fed chief John Williams made similar comments in a speech about economic research earlier that day. "When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress," he said, adding that central bankers must "take swift action when faced with adverse economic conditions."

The Fed is expected to cut interest rates - lowering borrowing costs and incentivizing people to spend rather than save - in response to slowing global growth and heightened uncertainty due to the US-China trade war and rising tensions between the US and Iran. However, recent US data suggest the economy remains in good shape.

"Despite the better-than-expected June non-farm payrolls, retail sales, and factory output data, the Fed is expected to press ahead with at least a 25-basis point interest rate cut this month," said Han Tan, market analyst at FXTM. "Given that US inflation remains muted while global uncertainties continue to prevail, lower US interest rates should help ensure that US economic growth momentum remains steadfast."

However, other analysts fear the Fed is cutting rates for the wrong reasons, risking greater pain down the line.

"We sincerely hope that the Fed keep an eye on the economy and not the stock market because if their overly aggressive easing tilt is an attempt to keep equities supported, this would only create a more artificially inflated environment that will pop later in the future," said Konstantinos Anthis, head of research at ADSS.

Meanwhile, oil prices climbed on Friday after the US Navy shot down an Iranian drone in the Strait of Hormuz. "This is the latest of many provocative and hostile actions by Iran against vessels operating in international waters," President Donald Trump said, fueling fears of supply disruptions in the region.

Here's the market roundup as of 9:20 a.m. (4:20 a.m. ET):
  • Asian indexes have risen with the Shanghai Composite up 0.8%, Japan's Nikkei up 2%, and Hong Kong's Hang Seng up 1.2%.
  • European equities slid in morning trading. Germany's DAX and the Euro Stoxx 50 rose by 0.9%, while Britain's FTSE 100 climbed 0.7%.
  • US stocks were poised for a lower open. Futures underlying the Dow Jones Industrial Average and Nasdaq were up 0.5%, while S&P 500 futures were up 0.4%.
  • Oil prices rose with West Texas Intermediate crude up 0.9% at $55.80, and Brent crude up 1.1% at $62.60.
  • Bitcoin recovered some of its recent losses. The cryptocurrency was up about 8% at around $10,500.

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