Bond traders pared the chance of a September Federal Reserve interest-rate increase to an nearly three-week low as tepid economic data pushed Goldman Sachs Group Inc.to reduce the likelihood of a hike this month, reversing a revision made just five days ago.
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The weak data, coming after last week’s lackluster U.S.jobs report clouded the outlook for the us economy and indicated that the Fed may hold off raising interest rates for longer.
The report showing American services industries expanded in August at the weakest pace in six years jolted USA markets from a state of limbo after Friday’s lukewarm reading on August payrolls.
Comments from several Fed officials in recent weeks had boosted bets on a rate hike in coming months, but investors have had to scale back their expectations since Friday’s weaker-than-expected United States payrolls report. “In these circumstances, one large surprise could carry a lot of weight”, Goldman said.
“An increase is on the table” at the Fed’s next meeting, on Sept 20-21, San Francisco Fed President John Williams told reporters after a speech in Reno, Nevada in which he said he prefers a rate hike “sooner than later”.
Republican presidential nominee Donald Trump, who has previously accused the Federal Reserve of keeping interest rates low to help President Barack Obama, said on Monday that the USA central bank has created a “false economy” and that interest rates should change.
The Nasdaq Composite was down 12.45 points, or 0.24 percent, at 5,263.46, after touching an intraday high. The crown had fallen to a one-year low last week after a slew of weak economic data.
The British pound GBP= rose 1 percent against the dollar, touching a fresh seven-week high at $1.3443.
The service sector makes up more than two-thirds of the US economy.
Commodities analyst at INTL FCStone Edward Meir said the slower-than-expected data on Tuesday reduced the odds of a rate hike in September to 15 percent probability with a December move still around the 50-55 percent mark.
“There simply may not be enough room for central banks to cut interest rates in response to an economic downturn when both natural rates and inflation are very low”.
In data, the US JOLTS job openings will be due later today.
However, Trump also told Fortune in April that it would be “scary” if the Fed raised rates now. Dow and S&P futures each added 0.1 percent.
Shares of molecular diagnostics company Cepheid CPHD.O jumped 24.4 percent premarket after the company agreed to be bought by Danaher DHR.N for $4 billion, including debt.
The dollar USDJPY, -0.06% was at ¥103.66, compared with ¥103.44 late Monday in North American trading hours, according to EBS.
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Trump is hardly the only person to criticize the Fed for keeping rates low for longer than is needed.
