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On October 3, 2024, the Federal Reserve building in Washington stood as a backdrop to the latest developments in U.S. economic indicators. This report is part of CNBC’s Daily Open, designed to inform investors around the globe on key market updates. To stay informed, you can sign up for the newsletter.
Key Highlights
American inflation trends upward
In October, the overall inflation rate in the United States reached 2.6%, aligning with market expectations. Core inflation, which excludes volatile food and energy prices, remained steady at 3.3%. This overall figure exceeds the Federal Reserve’s target, potentially complicating its plans for easing monetary policy.
Mixed market responses following inflation data
Following the inflation report, U.S. markets largely traded within tight ranges. The S&P 500 and Dow Jones Industrial Average experienced modest gains of 0.02% and 0.11%, respectively, while the Nasdaq Composite saw a slight decline of 0.26%. Asian markets also displayed mixed results, with Hong Kong shares dropping over 1%.
Chinese AI startup expands capabilities
Beijing-based Shengshu Technology announced enhancements to its text-to-video tool, Vidu, which will now generate videos by merging images, building on its existing feature that creates 8-second clips from written prompts. In contrast, OpenAI’s Sora AI model, which can produce minute-long videos from text, has not yet seen a public release.
AMD announces workforce reductions
Chipmaker AMD is set to lay off about 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 filing with the U.S. Securities and Exchange Commission, AMD employed approximately 26,000 individuals at the end of the previous year.
Wells Fargo advises caution on Trump-related investments
Investment in what’s termed the “Trump trade,” focused on companies linked to Donald Trump’s campaign promises, has surged. However, the Wells Fargo Investment Institute cautions that these investments may not yield expected returns.
Reflecting on the current economic landscape, Shakespeare’s famous line about life as a stage resonates with the 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 Fed’s September “dot plot.”
Notably, this October reading marks the first increase in headline inflation since March, as the 2.6% figure surpasses the Fed’s 2% target. Looking ahead to 2025, U.S. President Joe Biden will transition out of 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 shifts, Federal Reserve Chairman Jerome Powell may face increased pressure. The Fed had anticipated 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 gains control of both chambers of Congress, enabling him to enact his proposals.
This scenario raises the possibility that the Fed may need to re-evaluate its easing strategy if inflation rises during a second Trump term. The prospect of a “higher for longer” interest rate environment could become a reality once again, influencing both economic policy and market dynamics.
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