Fed Chairman Powell reassures markets: don't worry about stagflation

Fed Chairman Powell reassures markets: don't worry about stagflation

Fed Chairman Jerome Powell gave the markets the expected news after the Fed's interest rate meeting: There are no signs of a stagnating economy with persistent inflation, also known as "stagflation". This clarification had a calming effect on the markets, which initially reacted positively but gave up their gains as trading continued. The Fed's decision to leave interest rates unchanged resulted in some composure among investors about interest rate policy.

Although U.S. inflation rose to 3.5 percent in February and March, Powell stressed that the economy continues to grow at about 3 percent a year and the unemployment rate remains low. This positive outlook suggests that initial expectations of six rate cuts this year may not materialize. Concerns about the real estate markets regarding falling property prices and high financing costs were mentioned, but the defaults are still limited.

DZ Bank reduced its assessment to the fact that only one interest rate cut is expected in December. Uncertainty regarding interest rate policy remains as the Fed still has four interest rate meetings scheduled this year. The European Central Bank is expected to take into account the weaker economic situation in the euro area and may cut its key interest rates before the Fed. The upcoming interest rates will therefore be followed closely.

Interest rate policy is of secondary importance for the stock markets for the time being, while interest is mainly focused on economic and corporate data. Positive news from companies such as Amazon with a strong quarterly profit and the fall in oil prices due to increased supply have further influenced the markets. However, the development of the stock markets remains dependent on other economic indicators and the central banks are keeping a close eye on further interest rate developments.