The Fed sends a message to the markets: interest rates will not be cut (for now)

Powell’s Message Shakes Asian Markets

Federal Reserve Chair, Jerome Powell, has sent a clear message to the markets: it’s not time to cut rates yet, and inflation is not decreasing fast enough to ease monetary policy.
This statement had a significant impact on Asian stock markets, with a mixed performance seen after the most powerful central banker in the world adopted a more aggressive and realistic tone.

Implications for Global Markets

It was already expected for weeks in global markets that the Fed was not on the verge of lowering interest rates.
Both the ECB and the BoE are now expected to act before the American central bank, with potential consequences on various assets and currency relationships.

Traders have already reduced their expectations for rate cuts this year to less than 2, down from the initially anticipated 6 at the beginning of the year.
The first rate cut is still estimated for September, although market confidence is waning.

Asian stocks experienced various movements, with losses in Japan offset by gains in mainland China.
Chinese stocks rebounded as regulatory authorities sought to address concerns over new stock rules following the setback of low-capitalization stocks.

Treasury yields traded in a narrow range after hitting new highs for 2024 on Tuesday when Fed Chair Jerome Powell stated that it will likely take more time to have confidence that inflation is heading towards the central bank’s target.

EUR/USD continued to face downward pressure for the sixth consecutive session, sliding to levels near 1.0600 and marking new lows for 2024 amid the ongoing strength of the US dollar.

Uncertainty in Monetary Policy Choices

The divergence between the ECB and the Fed in monetary policy choices is becoming increasingly apparent.
Recent inflation data, with three months of upside surprises, has not provided policymakers with enough confidence to ease policy soon.

Expectations for Fed rate cuts have decreased significantly in the market following Powell’s comments on inflation.
Previously anticipating up to six rate cuts in 2024, traders now doubt even half a percentage point reduction.

Fed Vice Chair Philip Jefferson expects inflation to continue moderating with interest rates at current levels, but persistent price pressures would justify maintaining higher financial burdens for longer.

Overall, market experts are closely monitoring the evolving situation and its potential repercussions on global financial dynamics.