The Federal Reserve’s announcement of a planned interest rate cut next year had a profound impact on global markets. Wall Street celebrated this dovish pivot, with the Dow closing at a record high above 37,000, and the S&P 500 reaching a near two-year high.
The central bank, after holding rates at a 22-year high as expected, signaled a shift toward a more accommodative monetary policy, acknowledging their belief that the peak rate for this cycle is likely at hand. Fed chief Jerome Powell emphasized that the decision allows policymakers to assess the need for additional policy adjustments.
In addition to maintaining rates, the Fed released its “dot plot,” revealing an unexpected 75 basis points of cuts in 2024, exceeding previous indications. Traders, responding to this development, are now betting on 140 basis points of cuts over the next year. The news sparked a bullish surge on Wall Street, with Treasuries strengthening, indicating a favorable response to the outlook for future rates.
The positive sentiment carried over to Asian markets, where Hong Kong, Sydney, Seoul, Singapore, Taipei, Manila, and Jakarta all recorded gains of over one percent. Shanghai also joined the rally. Gold, reacting to the news, held above $2,000, while oil prices extended their rally, supported by data showing a decrease in US stockpiles.
However, Tokyo experienced a decline, partly due to a stronger yen, which appreciated approximately 1.8 percent against the dollar. Japanese traders were also monitoring a political crisis involving Prime Minister Fumio Kishida, with three ministers resigning over a major corruption scandal in the ruling party.
While the markets are in a buying mood, some analysts urge caution, emphasizing that the Fed will likely ensure inflation is under control before implementing rate cuts. Despite the positive response in the short term, uncertainties remain, particularly concerning rising output and weakening demand, especially from China, which have kept oil prices around six-month lows.
