Dow falls 1,000 points as recession fears fuel calls for interest rate cut
(NEW YORK) — Stocks plummeted on Monday as markets worldwide reckoned with a disappointing jobs report last week that fueled concern of a possible recession.
The major stock indexes in the U.S. fell more than 2% in early trading. The S&P 500 fell about 4%, while the tech-heavy Nasdaq dropped more than 6%. The Dow Jones Industrial Average fell roughly 1,000 points, or nearly 3%.
The market downturn triggered calls for a large interest rate cut at the Federal Reserve’s next meeting in September. Some investors voiced an even more urgent request for a rare emergency rate cut as soon as this week.
Japan’s main Nikkei 225 stock index dropped more than 12%, its worst day of trading since 1987.
In early U.S. trading, chipmaker Nvidia plunged more than 14%. Apple fell more than 8%.
“Investors are feeling massive pain globally,” Dan Ives, a managing director of equity research at investment firm Wedbush, said in a note to clients.
U.S. markets, he added, are “trading heavy in the red across the board.”
Employers hired 114,000 workers in July, falling well short of economist expectations of 185,000 jobs added, U.S. Bureau of Labor Statistics data on Friday showed. The unemployment rate climbed to 4.3%, the highest level since October 2021.
The unemployment rate has soared this year from 3.7% to 4.3%. That trend has triggered a recession indicator known as the “Sahm Rule,” which says that a rise of 0.5 percentage points in the unemployment rate within a 12-month period typically precedes a recession.
On Sunday, Goldman Sachs economists raised the probability of a U.S. recession in the next year from 15% to 25%.
(LOS ANGELES) — Waymo, the self-driving car division of Alphabet, first began offering its autonomous rideshare service on the streets of San Francisco earlier this year. Now the company is expanding, recently launching in Los Angeles.
Waymo’s electric Jaguar I-Pace SUVs operate as taxis, except there’s nobody in the driver’s seat. Using cameras, sensors and even microphones, it ferries riders to their destinations – if all goes according to plan – just as a human driver would.
“There is nobody behind the driver’s seat at all — in fact, often there’s nobody in the car at all, and it’s driving to pick somebody up,” says Andrew Chatham, senior director of commercialization, scale, and infrastructure at Waymo. He spoke with ABC Audio in LA for a new exhibit at the famed Petersen Automotive Museum highlighting the story of Waymo.
“So we use a variety of sensors on the car. There’s cameras, there’s radars and lidar — which is a laser range finding system. We take all that information, we look 360 degrees around us, multiple times a second, and we drive,” says Chatham.
And Waymo claims driving in one of their cars with the computers doing the work – accelerating, braking, stopping, and changing lanes – is actually safer than driving with a human behind the wheel.
“It’s very clear that it is ready for the streets — we’ve seen from statistics that it is safer than human drivers, so if you’re comfortable with those, you should be pretty comfortable with Waymo,” says Chatham. “Even more comfortable.”
But not everyone is comfortable.
“We’ve heard of these cars shutting down when they lose cell service, traffic being backed up, they don’t know how to maneuver through more, you know, winding roads. Blocking emergency vehicles. And also there’s an aspect of jobs being lost,” says Los Angeles City Councilman Hugo Soto-Martinez.
“So as far as I can tell, there’s some things where we just have to put our foot down and this is one of them,” he says.
This summer, police in Phoenix, where the company also operates, pulled over a Waymo vehicle for driving into oncoming traffic while trying to navigate around a construction area. That maneuver is why Councilmember Soto-Martinez says he doesn’t want them on his streets.
“We are elected to provide safety, to deal with transportation issues, and so many other things for our residents, that’s what we are voted for,” says Soto-Martinez.
Waymo said the incident in Phoenix happened due to “inconsistent construction signage.”
But like it or not, self-driving cars are the future, according to Rahul Jain, a professor at the University of Southern California who specializes in electrical and computer engineering and works with Google.
“This is really inevitable, it’s going to happen,” says Jain, though he adds that wide-scale adoption of self-driving technology is likely a long way off.
“Twenty years might be the right timespan, when we see this technology reduce in cost enough, and also advanced sufficiently that it will be in passenger vehicles that people can buy,” he says.
Even still, Jain says the technology is currently safe for passengers, so much so that the next step for autonomous vehicle companies could be removing the vehicle’s steering wheel.
“There’s definitely going to be some transition as this technology evolves, you know, then it will be awhile before people become comfortable, and then we can feel comfortable with the steering wheel also missing. But I don’t think we’re there yet,” says Jain.
Chatham says, in general, his company’s technology is always learning. Already, the cars know to pull over when they detect the sound of a siren or flashing emergency lights. Next, he says, Waymo is tackling how autonomous vehicles behave in inclement weather conditions.
“Sure, on the map the lane is over here, but according to how everybody else is driving and where the divots are in the snow, it looks like the lane is really over here,” says Chatham. “And that’s something that the car starts to reason about and it’s getting more intelligent with AI about exactly where we want to drive to be like a human.”
But Councilmember Soto-Martinez has another issue: driverless taxis could mean a human is out of a job.
“It’s definitely taking jobs right now. I mean, there are autonomous vehicles driving folks around with the many issues,” he says. “In my community, those jobs are often done by people who just arrived in this country. … If that’s going to be outsourced to an autonomous vehicle that is gonna cause all these safety concerns, I have big issues with that.”
Jain says history would show technology always takes jobs, and that jobs change over time.
“Eventually there is some adjustment in the labor market. People find other kinds of jobs, and start to do more interesting jobs than I guess, driving cars around,” says Jain.
Chatham says while nobody is driving the cars, plenty of people are working at Waymo.
“Waymo’s provided a lot of jobs. We’ve do use several human beings to run the service, we have people operating the depots, we have people working in desk-based jobs. I’m employed by Waymo,” says Chatham.
“And I think it’s also easy to forget that people spend a lot of their time just sitting in traffic, beholden to the steering wheel that they’re sitting behind. And they can free up that time, and make people productive. That is time back in people’s lives,” he adds.
Waymo is already looking at what their next vehicle will look like, a custom built van-like vehicle designed by a Chinese firm called Zeekr.
“The base vehicle is really built as a versatile platform. This is really a vehicle that’s built to be a high thru-put taxi service. It’s very comfortable,” says Chatham.
Listen to this story and more on ABC Audio’s new special, On The Move:
(WASHINGTON) — Borrowers eager for the Federal Reserve to abandon high interest rates could not have scripted a better four-word declaration than the one on Friday from Fed Chair Jerome Powell: “The time has come.”
Powell indicated that the Fed would soon bring interest rates down from a 23-year high. The shift could lower borrowing costs for everything from credit cards to auto loans to mortgages.
The pace and scale of rate cuts remains unknown, however. A cautious approach could leave borrowers saddled with high costs for the next several years while an aggressive reset could ease loan rates substantially within months.
“The question now is how far and how fast should the Fed cut rates?” Mark Zandi, chief economist at Moody’s Analytics, said in a post on X on Sunday.
The chances of an interest rate cut at the Fed’s next meeting in September are all but certain, according to the CME FedWatch Tool, a measure of market sentiment.
Market observers are divided over whether the Fed will impose its typical cut of a quarter of a percentage point or opt for a larger half-point cut. The tool indicates a roughly 60% chance of a quarter-point cut and a 40% chance of a half-point cut.
Over the remainder of the year, the most likely scenario is a quarter-point rate cut at each of the Fed’s three scheduled meetings in September, November and December, the CME FedWatch Tool shows.
The Fed is guided by a dual mandate to keep inflation under control and maximize employment. In theory, low interest rates help stimulate economic activity and boost employment; high interest rates slow economic performance and ease inflation.
In recent months, the labor market has slowed alongside cooling inflation. That trend was highlighted last month by a weaker-than-expected jobs report that raised concern among some economists that the U.S. may be headed toward a recession.
Recent trends have shifted the Fed’s focus away from controlling inflation and toward ensuring a healthy labor market, Powell said Friday.
“A cooldown in the labor market is unmistakable,” Powell said, adding that he would let economic performance dictate the course of rate cuts.
“The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks,” Powell said.
Gregory Daco, chief economist at accounting firm EY, said in a statement to ABC News that he expects a quarter-point rate cut at each of the Fed’s next three meetings in an effort to soften the ongoing economic slowdown. However, worries about an imminent recession are overstated, Daco added.
The Fed aims to “buffer the economic downshift,” Daco said.
Deutsche Bank, which also projects three quarter-point rate cuts before the end of the year, said in a note to clients on Friday that a weak jobs report early in September could push the Fed to opt for a larger half-point cut at its meeting later that month.
“The softer-than-expected July jobs report and recent bouts of market volatility have shifted risks towards the Fed cutting more aggressively upfront,” Deutsche Bank said.
Analysts differ widely over the course of interest rate cuts in the next year or two. Zandi said the Fed should bring interest rates down significantly from the current target rate of between 5.25% and 5.5%. By the end of next year, interest rates should stand at 3%, he added.
By contrast, former Treasury Secretary Larry Summers cautioned against an aggressive approach to interest rate cuts. “We need to be rather more cautious about the medium term outlook for monetary policy,” Summers said in a post on X on Saturday.
Still, Summers added, the need for some rate cutting is beyond question.
“Inflation is coming down. The economy is slowing. On current facts, absolutely the next move should be towards monetary policy easing,” Summers said.
(NEW YORK) — The Federal Reserve cut its benchmark interest rate a half of a percentage point on Wednesday in a landmark decision that dials back its years-long fight against inflation and could deliver relief for borrowers saddled with high costs.
The central bank’s first rate cut since 2020 came after a recent stretch of data had established the key conditions for a rate cut: falling inflation and slowing job gains.
In theory, lower interest rates help stimulate economic activity and boost employment. The Dow Jones Industrial Average surged 200 points in the immediate aftermath of the announcement on Wednesday afternoon.
The S&P 500 and the Nasdaq also climbed following the news.
Speaking at a press conference in Washington D.C. on Wednesday, Fed Chair Jerome Powell described the rate decision as a shift in policy at the central bank.
“This recalibration of our policy stance will help maintain the strength of the economy and the labor market, and enable further progress on inflation,” Powell said.
“The U.S. economy is in good shape,” Powell added. “We want to keep it there.”
The Federal Open Market Committee, a policymaking body at the Fed, on Wednesday forecast further interest rate cuts.
By the end of 2024, interest rates will fall nearly another half of a percentage point from their current level of between 4.75% and 5%, according to FOMC projections. Interest rates will drop another percentage point over the course of 2025, the projections indicated.
Over time, rate cuts ease the burden on borrowers for everything from home mortgages to credit cards to cars, making it cheaper to get a loan or refinance one. The cuts also boost company valuations, potentially helping fuel returns for stockholders.
Earlier this year, mortgage rates reached their highest level in more than two decades; while the average rate for credit card holders topped anything on record at the Fed. Interest rates for car loans have soared to levels last seen at the onset of the 2008 financial crisis, Edmunds found.
Interest rate cuts will bring many of those payments down, delivering gains for borrowers.
However, borrowers should not expect immediate relief from the Fed’s initial rate cut, Elizabeth Renter, senior economist at NerdWallet, told ABC News in a statement prior to the decision.
“This initial rate cut will have little immediate impact,” Renter said. “I anticipate many consumers and business owners will take the beginning of this change in monetary policy as a sign of hope.”
Inflation has slowed dramatically from a peak of about 9% in 2022, though it remains slightly higher than the Fed’s target of 2%.
Meanwhile, the job market has cooled. A weaker-than-expected jobs report in each of the last two months has stoked concern among some economists.
“We will do everything we can to support a strong labor market as we make further progress toward price stability,” Powell said last month.
Prior to the decision, the chances of a rate cut were are all but certain, according to the CME FedWatch Tool, a measure of market sentiment.
Market observers, however, had been divided over whether the Fed will impose its typical cut of a quarter of a percentage point, or opt for a larger half-point cut. The tool estimated the probability of a half-point cut at 65% and the odds of a quarter-point cut at 35%.
A half-point cut risked overstimulating the economy and rekindling elevated inflation, while a quarter-point cut threatened to delay the type of economic jumpstart that may be required to avert a recession, Seema Shah, chief global strategist at Principal Asset Management, told ABC News in a statement.
“Rarely have market expectations been so torn” on the eve of a rate decision, Shah added.
The rate cut on Wednesday went into effect less than 50 days before the November election.
The decision deviated from the policy approach taken by the Fed prior to many recent presidential elections, a Reuters analysis found. Policy rates were left unchanged for six to 12 months before the 2020, 2016, 2012 and 2000 U.S. presidential elections, according to Reuters.
To be sure, the Fed says it bases its decisions on economic conditions and operates as an independent government body.
When asked about the 2024 election at a press conference in Washington, D.C., in December, Powell said, “We don’t think about politics.”