- Stocks rallied after the Fed hinted it could cut interest rates as soon as next month.
- Analysts were surprised by the Fed’s stance given the US economy isn’t in recession, and feared the bank could appear to have succumbed to markets trends and Trump demands.
- The Fed is “at a very serious risk of losing its credibility,” says one analyst.
- View Markets Insider’s homepage for more stories.
Stocks soared along with gold on Thursday after the US Federal Reserve hinted it could cut interest rates as soon as next month to spur growth, even though the economy is expected to grow by 2.1% this year.
“We can’t believe we are talking about a rate cut as soon as July, as the economy is NOT in a recession,” Steven DeSanctis, an equity strategist at Jefferies, said in a note to clients (the all caps was his). “Of the last five rate cuts, only ’95 was not associated with a recession.”
Yet Fed Chairman Jerome Powell pointed to economic “uncertainties” such as the US-China trade war that could worsen the global economic outlook. “The case for somewhat more accommodative policy has strengthened,” Powell said after the central bank cut its inflation forecast from 1.8% to 1.5%.
Market watchers were also concerned about the optics for the central bank, given recent clamoring from President Donald Trump and investors for rate cuts.
The “Fed looks like it is flip-flopping; changes its mind based not on economic data but on the caprice of financial markets; appears in thrall to the White House; and is therefore at a very serious risk of losing its credibility,” said Neil Wilson, chief market analyst for Markets.com.
Here’s the market roundup as of 9.16 a.m. (4.16 a.m. EST):
- Asian markets soared with the Shanghai Composite up 2.4%, the SZSE Component up 2.3%, and Hong Kong’s Hang Seng up 1.3%.
- European equities rose with Germany’s DAX up 0.8%, the Euro Stoxx 50 up 0.7%, and Britain’s FTSE 100 up 0.2%.
- US stocks are poised to open higher. Futures underlying the Dow Jones Industrial Average and S&P 500 rose about 0.5%, while Nasdaq futures jumped 1%.
- Oil surged with West Texas Intermediate crude up 2.6% at $US55.40, and Brent crude up 2.4% at $US63.30.
- Gold climbed 2.8% to $US1,386 as the prospect of lower interest rates spurred investors to shift their cash from US dollars to the yellow metal. “This is a big move, but if the Fed doesn’t deliver the cuts the bulls could be caught out,” Wilson said.
- The 10-year US Treasury yield dropped by about 1.5% to 1.998%, its first fall below 2% since late 2016.
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