ASX soars to five-month high as Wall Street surges on Fed; $A jumps
Rate cuts particularly help investments seen as expensive, lower quality or forcing their investors to wait the longest for big growth. Some of Wednesday’s bigger winners were bitcoin, which rose nearly 4 per cent, and the Russell 2000 index of small US stocks, which jumped 3.5 per cent.
Apple was the strongest force pushing upward on the S&P 500, rising 1.7 per cent to its own record close. It and other big-tech stocks have been among the main reasons for the S&P 500’s 22.6 per cent rally this year.
All the excitement came as the Federal Reserve on Wednesday held its main interest rate steady at a range of 5.25 per cent to 5.50 per cent, as was widely expected. It has hiked that rate up from virtually zero early last year in hopes of slowing the economy and hurting investment prices by exactly the right amount: enough to snuff out high inflation but not so much that it causes a painful recession.
With inflation down sharply from its peak two summers ago and the economy still solid despite high interest rates, hopes have been rising that the Fed can pull off that perfect landing. And in a press conference on Wednesday, Fed chair Jerome Powell said its main interest rate is probably already at or near its peak.
While acknowledging that inflation is still too high and the battle against it is not over, Powell said Fed officials did not want to wait too long before cutting the federal funds rate, which is at its highest level since 2001.
“We’re aware of the risk that we would hang on too long” before cutting rates, he said. “We know that’s a risk, and we’re very focused on not making that mistake.”
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Following the release of the projections, traders on Wall Street upped their bets for rate cuts in 2024. A majority of bets now expect the federal funds rate to end next year at a range of 3.75 per cent to 4 per cent or lower, according to data from CME Group.
Treasury yields tumbled in the bond market on such bets. The yield on the 10-year Treasury dropped to 4.01 per cent from 4.21 per cent late on Tuesday. It was above 5 per cent in October, at its highest level since 2007. The two-year yield, which moves more on expectations for the Fed, sank to 4.43 per cent from 4.73 per cent.
With AP
