As expected, the Federal Reserve (FED) has cut interest rates by 0.25 percentage point to a level of 4.50 percent- 4.75 percent. Federal Reserve Chairman, Jerome Powell, emphasized that the election results will not affect the US monetary policy in the near future. The market expects another rate cut in December, though further FED decisions will depend on the actions of the new administration. The FED’s decision contributed to the rise in global stock exchanges. The WIG20 index also saw a significant increase.
The current week is rich in significant events for the investment market. Following the US presidential election, a crucial point was the FED decision. There was also a meeting of the Monetary Policy Council (RPP) and the publication of the results of some companies for the third quarter. The FED’s decision did not introduce additional uncertainty in the market. On the contrary, Jerome Powell reminded investors of the solid fundamentals of the US economy, highlighting a significant drop in US inflation and increased confidence in its return to a target level of 2 percent. He also added that the labor market is no longer a source of inflation. Powell avoided political topics, emphasizing the independence of the Federal Reserve from political influence, which was positively received by investors. The current actions of the FED are assessed as effective in fighting inflation and not harming the US economy.
Although Powell did not clearly state whether there will be another rate cut in December, his cautious approach did not surprise investors. The FED ties its December decisions to current data but seems more confident about the labor market situation and the overall economy’s health than a few months ago. Powell noted that further cooling of the labor market is not necessary to achieve the inflation target.
Following the FED decision, stock exchanges reacted with significant increases. The S&P 500 index approached the 6000 point level, reaching its 49th record this year, and Nasdaq increased by 1.5 percent. Powell’s optimistic assessment of the economy was positively received, even though the lack of clear announcements of further interest rate cuts was interpreted as a cautious signal. As a result, the yields on US Treasury bonds fell (to 4.33 percent), and the dollar weakened, which boosted upturns in the stock market, particularly in the technology sector. However, in the short term, yields may still surprise, which some attribute to economic growth and greater confidence in the future of the economy. Others point to increasing fiscal spending.
For Poles, the rate cut in the US may put additional pressure on future rate cuts by the Monetary Policy Council, especially in the context of the actions of the European Central Bank. The FED decision also positively influenced investor sentiment on the Warsaw Stock Exchange. On Thursday, the WIG20 gained 3.09 percent, and WIG 2.49 percent, representing the most significant one-day increase in the indices for several months. After the increases triggered by the elections, the dollar exchange rate stabilized around PLN 4.01.
Author: Paweł Majtkowski, eToro analyst in Poland.
Source: https://ceo.com.pl/obnizka-stop-przez-fed-pozytywnym-sygnalem-dla-inwestorow-w-polsce-i-na-swiecie-47612
