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Markets cautious after Fed holds rates steady

The Federal Reserve (Fed) kept interest rates unchanged on Wednesday, while signalling a cautious outlook with projections of two rate cuts by the end of 2025. US equity markets showed little reaction, closing mostly flat. Asian stocks followed suit with a mixed performance on Thursday, while European markets face renewed focus on central bank decisions later Thursday, including the Bank of England (13:00) and Swiss National Bank (09:30).

  • Data
  • Autore Shane Strowmatt, LGT
  • Tempo di lettura 5 minuto

Building of the Federal Reserve
© shutterstock

The Fed maintained its benchmark interest rate in the 4.25%-4.50% range on Wednesday, while projecting two rate cuts by the end of 2025. Chair Jerome Powell warned of "meaningful" inflation ahead, driven by potential import tariffs under the Trump administration, which could raise consumer costs. Policymakers revised their economic outlook, forecasting slower GDP growth of 1.4% and higher inflation at 3% for 2025. Despite calls from President Trump for immediate rate cuts, the Fed emphasised a cautious, data-driven approach amid uncertainty surrounding trade policies and global economic risks. US stock markets showed minimal movement on Wednesday following the Fed decision. The Dow Jones Industrial closed 0.1% lower at 42,171.66 points, while the S&P 500 and Nasdaq 100 were essentially flat. Gold prices were steady, trading around USD 3370 per ounce, and ten-year US Treasury yields were stable, just below 4.4%.

Asian stocks mostly lower

Asian equities were mostly in the red on Wednesday, following Wall Street's subdued performance. Japan's Nikkei 225 was trading 0.9% lower, while Hong Kong's Hang Seng Index tumbled 1.8%. Mainland China's CSI 300 slid 0.7%. Korea's Kospi bucked the trend, gaining 0.1%, while Australia's S&P/ASX 200 was essentially flat.

Euro-area inflation on track, stocks fall

The annual inflation rate in the eurozone declined to 1.9% in May 2025 from 2.2% in April, marking a significant decrease from 2.6% recorded in the same month last year, according to Eurostat. Inflation in the broader European Union also fell, reaching 2.2% in May, down from 2.4% the previous month. The largest contributors to inflation were services and food, alcohol, and tobacco, while energy prices reduced inflation slightly. The May figures for the euro area puts inflation back within the European Central Bank’s target of 2%. European stock indices ignored the positive inflation news and closed lower on Tuesday. The Euro Stoxx 50 fell 0.4% to 5269.45 points, while Germany's DAX lost 0.5% and France's CAC 40 dropped 0.4%. Switzerland's SMI declined 0.4%.

UK inflation slows in May amid food price surge

British inflation slowed to 3.4% in May, down from 3.5% in April, as airfares declined following an Easter spike and a car tax data error was corrected, according to the Office for National Statistics on Wednesday. However, food prices rose by 4.4% year-on-year, marking the fastest increase in over a year and adding pressure on low-income households. The market expects the Bank of England to keep interest rates on hold later Thursday but anticipates further rate cuts later this year. Rising oil prices, driven by geopolitical tensions, could pose risks to inflation forecasts.

Swedish policy rate cut amid economic slowdown

Sweden’s Riksbank, lowered its policy rate by 0.25 percentage points to 2% on Wednesday, citing weaker economic growth and subdued inflation. The decision aims to stabilise inflation at the target level and support economic activity, which has been slower than anticipated due to high unemployment and global uncertainties, including geopolitical tensions and trade policies. The Riksbank signalled the possibility of further policy rate cuts later this year, depending on economic developments. The new rate takes effect on 25 June 2025.

Corporate and economic calendar

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: Swiss trade balance (08:00), Swiss National Bank interest rate decision (09:30), European Central Bank President Christine Lagarde speaks (09:30), Bank of England interest rate decision (13:00), Lagarde speaks again (18:00).

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