Fed surprises markets with interest rate cut outlook - Investors cheer Dow Jones record high while ignoring ECB

Fed surprises markets with interest rate cut outlook - Investors cheer Dow Jones record high while ignoring ECB

According to a report by www.stockstreet.de,

The US Federal Reserve (Fed) surprised markets by partially confirming expectations of interest rate cuts. This led to a new record high for the Dow Jones. The stock markets have priced in up to 5 interest rate cuts in the coming year, and the probability of a first rate cut in March 2024 is almost 70%. This is in contrast to the expectations of the FOMC members, who are currently only planning 3 interest rate hikes or a reduction of a total of 0.75 percentage points.

However, interest rate cuts should not be viewed as positive across the board. The reason for the interest rate cuts is crucial. In the event of a normal interest rate adjustment due to inflation targets being met, this would be positive. However, it would be negative if the economy slipped into recession and rapid interest rate cuts were required.

In contrast to the Fed, the European Central Bank (ECB) has not announced any discussion about interest rate cuts and has decided to reduce the PEPP portfolio and stop reinvesting the principal amounts from the PEPP at the end of 2024. This could mean further withdrawal of liquidity from the market.

Overall, the situation on the markets remains volatile following the Fed and ECB interest rate decisions. The bears are trying to take over the market while the bulls remain strong so far. Future developments remain to be seen.