As widely anticipated, Jerome Powell announced on Wednesday that interest rates would remain unchanged for the time being. What was not expected however is the Federal Reserve signalling that it will cut rates next year even with the economy still growing. It is the first time we’ve heard anything close to substantial with regards to future monetary easing and stocks welcomed the early Christmas present with open arms.
The Dow Jones wasted no time, gaining over 500 points on Wednesday to smash through its previous all-time high from two years ago. The S&P 500 and Nasdaq Composite both rose in tandem, closing 1.37% and 1.38% higher respectively. The S&P 500 is now tantalisingly close to its own fresh highs, although the Nasdaq is somewhat further away from such accolades.
The monetary olive branch even extended to commodities, with gold finally clawing back some of its recent losses to close back above $2000 and oil up 5% since mid-week lows.
Predictably, the threat of future rate cuts sent the Dollar plummeting to the downside, the DXY losing 0.88% on Wednesday. Things didn’t improve the following day when the European Central Bank failed to match the Fed’s commitment, instead stating that inflation would likely go up in the near future and that the battle was by no means over. The Euro gained over a percent as a result of Lagarde’s comments, managing to touch $1.10 on Thursday. The ECB’s stance was closely matched by the Bank of England, who even hinted at additional monetary tightening should inflationary pressures persist, sending Cable 1.16% higher to close around $1.276.
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