Week ending 20 September 2024
Fed cuts interest rates by 0.50%: focus now shifts towards employment and stabilising the job market.
of England and Japan hold rates: lower inflation needed in the UK before reducing again. The S&P 500 rallies: reaching another all-time high in 2024.
ending 20 September
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Markets were highly focused on the size of the interest rate cut given in the Fed’s September meeting. The Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate by 0.50% to 4.75%-5.00% at its September meeting, marking the first cut in four years. However, what really matters is the future trajectory and if the cut will be enough to support a growing economy. The new September rate projections indicate 1% worth of cuts in 2024, with most in the FOMC expecting a further 1% of cuts through 2025. Towards the end of 2026 most then anticipate that rates will drop below 3%.
Chair Powell emphasised that the policy recalibration was “a sign of commitment not to
get behind”. This week also saw the S&P 500 surge to its 39th all-time high of 2024.
A key question for markets was whether other central banks would follow the Fed but the Bank of England (BoE) left the interest rate at 5.00%. Given the differing inflation scenarios, markets are pricing in a slower pace of rate reductions in the UK compared to the US. UK service inflation remains too high for the Bank of England’s comfort. Core Consumer Price Inflation (CPI) in the UK is currently 3.6%, compared to 2.6% in the US. The Bank of Japan also held rates as expected.
The Fed began its easing cycle this month by reducing interest rates 0.50%, focus is now shifting towards its employment target. Investor and central banks alike continue to focus on key data points including inflation, unemployment and growth, that can provide insight into the relative health of economies.
Again this week there has been varied messaging across the globe as cuts were seen in the US but not in the UK. This is continued evidence that maintaining a well-diversified, long-term thinking to your investment approach rather than reacting to market swings is key. By staying committed to carefully considered plans, investors can navigate through periods of volatility and uncertainty.
Has provided the commentary within this document.
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