Markets Hitting ATHs With The Russell 2000 Out Front, Fed Plans To Hike Rates This Year

The Federal Open Market Committee (FOMC) meeting has concluded, and the outcome, as expected, is a holding of rates, or a status quo, as it were. There is of course a lot more to it than that. The key point of data that many were looking for is whether the outlook for the remainder of 2024 remains on track for rate cuts, or whether inflationary signals rearing their heads will put a spanner in the works of the expectations. The ‘dot plot'.

So what pointers did the Fed give? Rate cuts remain firmly on the agenda, and the current Fed interest rate is likely already at its peak according to Chair Powell.

“We believe that our policy rate is likely at its peak for this type of cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialling back policy restraint at some point this year,”

Jerome Powell, Federal Reserve Chairman

There remains on the agenda a series of rate cuts this year, three to be precise according to their guidance which would bring rates down from current target range of 5.25%-5.5% to 4.5%-4.75%. The ‘dot plot' which has been monitored closely to gain an understanding of individual member opinion pointed to three cuts in 2024, followed by four in 2025, and the 2024 outlook has been affirmed.

Whether the guidance becomes reality this year waits to be seen, but markets are very firmly in the green, after a pause on the previous inflation print made forecasters a little nervier than they had been for a while. Chairman Powell eased some of those concerns with his comment “We’re not going to overreact to these two months of data, nor are we going to ignore them.

This was reassurance if it was required that the FOMC are looking to make cuts, and only significant and consistent data to the contrary will put it off.

Markets reacted with a thumbs up to the Fed guidance, with all the major indices pushing firmly north in the immediate aftermath. As more guidance filters through, the market reaction remains affirmative. The Nasdaq Composite has jumped 1.1% so far through the session, the Dow is up 0.97%, S&P 500 adds 0.81%, and the Russell 2000 adds 1.99%.

This is undoubtedly a nod of support for the Fed, and in line with market expectations (and hopes). It has been said that markets do not like surprises, so to get consistency from the Fed in spite of earlier doubts is confidence building indeed. The Asktraders.com team are now looking forward to the BoE tomorrow, but before that, let's take the London markets roundup.

London Markets Roundup – FTSE Trades Flat Awaiting BoE

London's stock markets ended Wednesday’s trading session before the Fed made their call, and with a mixed but relatively steady performance. Markets in the UK processed fresh data indicating a larger-than-expected deceleration in UK inflation rates ahead of the Bank of England's own rate decision tomorrow.

The FTSE 100 saw a marginal dip of just 0.01%, closing the day at 7,737.38 points—a nearly flat end that suggests investors are treading cautiously. In contrast, the FTSE 250 index, which typically includes a broader sweep of UK businesses, registered a modest increase, rising 0.27% to end at 19,484.40 points.

This restrained day on the markets follows the release of the latest inflation figures from the UK, which showed consumer prices increasing at a slower pace than anticipated. The UK’s consumer price index (CPI) fell to 3.4% for February, a marked decrease from the 4% recorded in the previous month. The core CPI, excluding volatile items such as food and energy, also reflected this slowdown, rising by 4.5% in the year to February, down from a 5.1% rise in January.

The easing inflation could be a signal to policymakers about moderating price pressures, potentially shaping the upcoming decisions of the Bank of England regarding interest rates.

Individual stocks in London also made headlines. Responding to varying business developments, Prudential saw its shares decline by 4.53% amidst the day's trading, while Johnson Matthey enjoyed a significant boost of 7.76% after announcing a lucrative deal to sell its medical device components business for $700 million.

As UK markets brace for the upcoming decisions from the Bank of England, many will be wondering whether the Fed may have any indication on the trajectory of future monetary policy.