Fed-meeting: Expected news – good news for the stock markets
With an interest rate cut from 4.50% to 4.25%, yesterday's meeting of the US Federal Reserve met investors' expectations and appears poised to support the positive stock market trend we’ve witnessed since the turmoil in April.
As anticipated by the majority of investors, the Fed announced a 0.25 percentage point rate cut yesterday, bringing the benchmark interest rate down from 4.50% to 4.25%.
According to PFA’s Chief Strategist, Tine Choi Danielsen, the cut was primarily motivated by developments in US employment, which has started to show signs of weakness.
"The labour market appears less robust than before, as new data has revealed significantly weaker job growth this year than previously estimated. Additionally, unemployment has risen by nearly one percentage point since 2023, and we are approaching tipping points where unemployment could accelerate. At the same time, the Fed assesses that inflation, currently around 3%, is partly driven by temporary factors such as fluctuating tariffs. This has provided room to lower interest rates," she explains.
The Fed has also signaled that further rate cuts are expected before the end of the year, aligning with market expectations.
"They are still keeping a close eye on inflation but have determined that the current situation calls for support for employment without losing control of price stability. This aligns perfectly with the central bank’s so-called dual mandate to ensure both price stability and high employment," says Tine Choi Danielsen.
Still on track for a historic stock market comeback
The rate cut initially received mixed reactions, as the Fed’s statements came with caveats and are dependent on future economic data. However, judging by developments in the futures markets, today’s reactions have been predominantly positive.
"The market values predictability, and this is reflected in the reactions we’ve seen so far. This suggests that the historic stock market comeback we’ve witnessed since April may continue. For a typical PFA customer, returns have shifted from -10% in April to around +7% now," says Tine Choi Danielsen.
She adds that large American companies continue to generate strong profits and enjoy significant investor confidence, partly driven by the potential of artificial intelligence. Companies such as Google, Nvidia, Microsoft, and Amazon have all made substantial investments in this area.