Fed leaves rates unchanged and hints at only one cut: outlook for markets

Financial markets/economy

Posted by MoneyController on 13.06.2024

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In the latest Federal Reserve meeting, US monetary policy is unchanged: what are the prospects for cuts and what have been, broadly speaking, the reactions of the markets?

Fed postpones rate cut again

The US inflation data were slightly better than expected: the price increase from April to May was 3.3% against expectations of 3.4%. However, progress in bringing inflation to the 2% level is still deemed too modest by the Federal Reserve (Fed). This is why the US central bank decided not to cut rates at its last meeting, leaving them in the range of 5.25-5.5%, a level they have maintained for eleven months now.

Analysts' expectations: only one cut this year

Not even the data on core inflation, i.e. net of the energy and foodstuffs component, was not enough to convince the Fed, which recorded a further drop: from 3.6% in April to 3.4% in May. And so, after yesterday's session (12 June), analysts expect that Jerome Powell's Fed will probably only cut interest rates once before the end of this year and only after the elections have taken place.

Inflation data and Treasuries

However, it remains difficult to understand the impact of this news for the markets. In this case - as the Italian newspaper 'La Repubblica', among others, points out - it is possible that the Fed's decision to postpone the rate cut was, so to speak, offset by the inflation data, so that the movements of US Treasuries would indeed signal the possibility of not one but two cuts between now and the end of the year.

The US and European stock exchanges

The American stock exchanges therefore closed the day on 12 June also marking gains: +1.3% for the Nasdaq and +0.9% for the S&P 500. European stock exchanges also generally posted positive results: +1% for the CAC 40, +1.4% for the DAX and the FTSE MIB, +0.6% for the IBEX and +0.8% for the FTSE 100.

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