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The Economic Times
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    Dow rises over 100 points to hit record after Fed delivers super-sized 50 bps cut

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    Dow rises over 100 points to hit record after Fed delivers super-sized 50 bps cut
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    Synopsis

    US stocks surged after the Federal Reserve cut interest rates by half a percentage point, ending its rate-hiking cycle. The Fed reduced its overnight lending rate to a range of 4.75%–5%. Wall Street responded positively, with the Dow Jones climbing 120 points and both the S&P 500 and Nasdaq Composite reaching new all-time highs.

    Wall StreetAP
    US stocks jumped on Wednesday after the Federal Reserve lowered interest rates by half a percentage point, ending its rate-hiking cycle that began in 2022. The Fed reduced its overnight lending rate to a range of 4.75%–5% from 5.25%–5.5%."

    "Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee's 2 percent objective but remains somewhat elevated," Fed said in a statement.

    After the announcement, Wall Street surged, with the Dow Jones climbing 120 points. The S&P 500 increased by 0.4%, while the Nasdaq Composite rose by 0.6%. Both the 30-stock Dow and the broader market index reached new all-time highs following the central bank's decision.

    Going forward, Fed said it will continue to monitor the implications of incoming information for the economic outlook.

    "The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals," an official statement noted.
    Growfast

      The committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

      According to a median of projections by the Fed, the interest rates are likely to be lowered to a range of 4.25%-4.5% by the end of 2024 as inflation approaches the targeted goal of 2%.

      By the end of 2025, policymakers anticipate a policy rate of 3.4%, implying an additional 100 bps cuts next year.

      Indian equities, which ended a volatile session lower on Wednesday, are likely to react positively when trading resumes on Thursday.

      "While easing US interest rates are directionally positive for equities in general, “we should keep in mind interest rates are just one variable in a complex adaptive system that determines the direction of Indian equity markets”, said Anoop Vijaykumar, Investments and Head of Research at Capitalmind.

      Analysts said Fed action would now be data dependent and unless growth data worsens significantly, subsequent policy action would be 25 bps cut.

      "From 'Inflation is transitory' to 'higher rates for longer', the Fed has come a long way to meet market expectations. This rate cut will facilitate flows to the emerging market assets with weaker dollar and lower rates," said Nilesh Shah, MD - Kotak Mahindra AMC.



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      ( Originally published on Sep 18, 2024 )

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