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Fed stays on course, US stocks soar to new highs

As expected, the Federal Reserve left interest rates unchanged for the fifth time in a row. The US central bank expects three rate cuts this year, as well as more robust economic growth. On Wall Street, stock market indices reacted with a surge, in some cases reaching new record highs. Further interest rate decisions from the Swiss National Bank, the Bank of England and the Norwegian Central Bank will follow today. 

Alessandro Fezzi, LGT
Temps de lecture
5 minutes
© Shutterstock

The US Federal Reserve left its key interest rate unchanged at a range of 5.25% to 5.5%. Federal Reserve Chairman Jerome Powell reiterated that "the federal funds rate has likely peaked for this cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin removing policy accommodation sometime this year". At the same time, the Fed's latest projections signalled three rate cuts this year, totalling 75 basis points. Simultaneously, the central bank expects inflation to average 2.4% this year (unchanged from December). For 2025, the inflation rate is expected to be 2.2%. Core inflation, which excludes energy and food prices, is expected to be 2.6% in 2024, according to the Fed. This is slightly higher than the 2.4% expected in December. The latest US inflation rate was 3.2% in February. The Fed's latest forecast for US economic growth came as a slight surprise. GDP growth is now expected to be much stronger at 2.1% in 2024, compared to "only" 1.4% in December.

On Wall Street, stock indexes rallied sharply following the Fed's policy decision, in some cases hitting new record highs. The Dow climbed to a high of 39,529 points, ending Wednesday's trading 1% higher at 39,512.13. The S&P 500 also hit a record high of 5,226, closing 0.9% higher at 5,224.62. On the Nasdaq, the tech-heavy indices gained around 1.1%. In the bond market, the yield on ten-year US government bonds declined from 4.34% to 4.26%, while the US dollar came under pressure in the currency market.

Tokyo stock indexes also closed at a new all-time high today. The Nikkei 225 gained 2% and the Topix 1.6%. South Korea's Kospi climbed 2.1% to its highest level since April 2022, while the small cap Kosdaq rose just under 1.5%. Hong Kong's Hang Seng Index gained 2.2%, while mainland China's CSI 300 was flat. In Australia, the S&P/ASX 200 was up 1.2%.

ECB President Christine Lagarde stressed at a conference that the ECB's monetary policy will remain dependent on economic data for the foreseeable future. Wage trends, corporate profit margins and productivity growth will be key. Capital markets are currently pricing in a first rate cut in June at the earliest. The central bank will then also present its new growth and inflation forecasts.

In the UK, consumer prices rose by 3.4% in February compared with the same period last year, meaning that inflation has continued to weaken somewhat more than expected. At the beginning of the year, inflation was running at 4%. Economists had expected it to fall to 3.5%. On a monthly basis, prices rose by 0.6% (consensus: +0.7%). By comparison, the eurozone inflation rate was 2.6% in February. This is unlikely to prompt the Bank of England to loosen its monetary policy. The base rate in the UK currently stands at 5.25%.

Corporate news in focus: Swatch, BMW, Porsche Holding, Enel with Q4 results and FedEx and Nike with Q3 results.

Economic data in focus: SNB interest rate decision (09:30 CET, press conference 10:00), PMI composite indices for France, Germany, the eurozone and the UK. The Norwegian Central Bank's interest rate decision (10:00), the German Bundesbank's monthly report, the Bank of England's interest rate decision (13:00), the US Philly Fed's manufacturing index, initial jobless claims and the PMI composite as well as existing home sales.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Lten steht Ihnen ein Berater der Bank gerne zur Verfügung.

Herausgeber: LGT Bank (Schweiz) AG, Glärnischstrasse 36, CH-8027 Zürich
Redaktion: Alessandro Fezzi
Quelle: LGT Bank (Schweiz) AG

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