The Fed’s Reassuring Stance on Markets: What Are Investors Expecting?

The Federal Reserve’s Decision Impact on Global Markets

The Federal Reserve has kept interest rates unchanged, as widely expected, and updated its dot plot estimating only one rate cut in 2024.
This decision keeps the US central bank’s monetary policy rather aggressive, yet the markets responded with confidence in the inflation slowdown.

During the Asian session, stocks rallied, and bond yields dropped as investors evaluated the cooling US consumer prices compared to the Fed’s somewhat hawkish stance.
Wall Street experienced a strong session with the S&P 500 and Nasdaq Composite reaching record highs.
The broader market index showed an 0.85% increase, while the tech-heavy Nasdaq surged by 1.53%.
The Dow Jones Industrial Average was the outlier, closing slightly down by 0.09%.

In Europe, futures on major indices are in the red.
The Old Continent faces uncertainty after the European elections, especially due to the disruptions in France that could have significant repercussions.
Investors, however, remain optimistic after the central bank acknowledged “modest further progress” towards its 2% inflation target.

Fed’s Forward Guidance and Market Expectations

The Federal Reserve indicated a single rate cut in 2024, down from the three previously expected in March.
Cool May consumer price index data raised hopes of inflation easing.
Treasury yields plunged to their lowest since April 1st following the report.

James McCann, Deputy Chief Economist at Abrdn, noted, “It’s not surprising that the Fed kept policy unchanged but maintains the door open for rate cuts this year.” He added, “Today’s downside surprise in the CPI inflation is more encouraging, and with most members split between one or two cuts, we wouldn’t be surprised to see market prices flirting with multiple rate cuts this year.”

Reuters experts highlight the attention on later US producer price readings, overshadowing European data releases like Spanish inflation figures and Eurozone industrial production, as data dependency remains the guiding principle.