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Fed hints at rate easing, sending Wall Street to new highs

As expected, the Federal Reserve left its key interest rate unchanged for the third time in a row. However, Fed Chairman Powell held out the prospect of the first interest rate cuts next year, which was greeted with new records on the US stock markets. Meanwhile, the yield on ten-year US government bonds fell below the 4% mark. The monetary policy decisions of the Bank of England, the Swiss National Bank and the Norwegian central bank are also due today. 

Alessandro Fezzi, LGT
Temps de lecture
5 minutes
Fed building
© Shutterstock

The Federal Reserve (Fed) is keeping its key interest rate in the range of 5.25 to 5.5%. However, the focus of interest was much more on the direction of future monetary policy, with Fed Chairman Jerome Powell confirming the hopes of the capital markets that interest rates will soon be eased. The prospect of even greater interest rate easing than previously forecast was held out. According to the Fed's latest forecasts, the key interest rate is expected to average 4.6% in the coming year. In September it was still 5.1%. This probably signals three interest rate cuts totaling 75 basis points in the coming year 2024. The Fed's looser stance reflects the significant decline in inflationary pressure - consumer price inflation in the US currently stands at 3.1%. However, Fed Chairman Powell also emphasized that the battle against inflation has still not been won. In its forecasts presented yesterday, the Fed anticipates a slightly lower overall inflation rate of 2.4% on average in the coming year (previously: 2.5%). With regard to economic growth, the Fed expects moderately lower GDP growth of 1.4% in 2024 (previously 1.5%). According to the Fed, there is currently no reason to believe that the US economy is in recession.

On Wall Street, the prospect of more favorable financing conditions led to new records. The Dow Jones Industrial climbed above the 37,000 mark and closed 1.4% higher at 37,090.24 points. The Dow has thus gained almost 15% since the end of October and is up almost 12% since the beginning of the year. The S&P 500 ended trading on Wednesday at 4,707.09 points (+1.37%) and the indices on the Nasdaq technology exchange also rose by around 1.3%, just below their previous highs. On the bond market, the yield on ten-year US government bonds fell below the 4% mark and currently stands at 3.96%.

In terms of individual stocks, Pfizer's announcement caused a stir. The US pharmaceutical company expects lower sales of USD 58.5 to 61.5 billion (consensus USD 62.9 billion) and lower earnings per share of USD 2.05 to 2.25 next year.

In Asia, reactions to the Fed's decision were mixed. In the wake of Wall Street, the Hang Seng Index rose by 1.15%. In Australia, the S&P/ASX 200 rose by 1.65%, reaching its highest level since August 1. In South Korea and Japan, however, the benchmark indices recorded losses. The Kospi in Seoul fell by 1.2% and the Nikkei 225 in Tokyo dropped by 0.75%.

Corporate news in focus: Costco Wholesale Q1 figures.

Economic data in focus: Germany Federal Ministry of Economics monthly report December (08:00), Sweden consumer prices November (08:00), Switzerland producer and import price index November (08:30), Spain consumer prices November (09:00), Germany DIW economic forecast winter 2023 (09:00), SNB interest rate decision (09:30) and press conference (10. 00), Norwegian Central Bank interest rate decision (10:00), Germany ifo economic forecast winter 2023 (10:30) and RWI economic forecast (11:00), OECD, economic outlook (11:00), Bank of England interest rate decision (13:00), ECB interest rate decision (14:15) and press conference (14:45), USA retail sales November and initial jobless claims (14:30).



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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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