Stock markets rise as US eyes interest rate cuts ahead
Stock markets have soared globally after the US Federal Reserve hinted that interest rate cuts lay ahead – a signal that is unlikely to be repeated on this side of the Atlantic.
The FTSE 100 was almost 2% higher – aided by a weakening dollar – while the more domestically focussed FTSE 250 was 3% up on the hope borrowing costs would soon start to ease in the world’s largest economy.
The US central bank had said on Wednesday evening, when it kept rate policy unchanged, that there was no immediate need for a hike because inflation had “eased over the past year.”
Officials held the rate at its current 22-year high of 5.25% to 5.5% for the third time in a row.
Similar to the UK, which will see its own interest rate decision announced at midday on Thursday, Fed chair Jerome Powell told a news conference that “no one is declaring victory” yet.
He added: “Inflation is still too high and ongoing progress in bringing it down is not assured.”
But Fed officials forecast that rates would likely be cut to 4.6% by the end of next year.
The Bank of England is due to announce its latest decision on interest rates at noon.
Most economists predict there will be no change from last month when the figure was held at 5.25% for the second consecutive time.
Financial markets have also priced in an almost 100% chance of a hold, according to the London Stock Exchange.
It comes as both the US and UK central banks battle to bring down inflation. It eased sharply in the UK to a two-year low of 4.6% in figures released last month.
Julien Lafargue, from Barclays Private Bank, said: “Although the vote will likely still be split, we expect the Bank of England (BoE) to maintain [rates] at 5.25%.
“In our view, the Monetary Policy Committee will also likely reinforce its message that the current monetary policy stance is restrictive but that, with risks to inflationary pressures being tilted to the upside, it’s too early to think about interest rate cuts.”
He added that markets had priced in an expectation that the Bank would begin cutting rates around June 2024.
Nicholas Hyett, from investment firm Wealth Club, said he also expected no change.
He added: “The question now is when the Bank starts cutting rates. Leave it too long and the cure could yet prove worse than the disease.”