Historic Interest Rate Cut: Fed Boosts US Markets

The US stock markets recognized a significant rise in futures on Thursday morning, which could push the S&P 500 to a new record high. This follows a substantial interest rate cut by the Federal Reserve and optimistic forecasts for a soft landing of the world's largest economy. Last night, the Fed, chaired by Jerome Powell, reduced its key interest rate by half a percentage point to a range of 4.75% to 5% for the first time in over four years. This decision ends one of the longest periods without monetary policy changes. Powell emphasized his confidence in inflation forecasts and expressed concerns about the labor market. However, he assured that the economy remains in "good shape" despite some cooling in the labor market. Powell indicated that Wednesday's rate cut and two further planned reductions would enable a soft landing that tames inflation without triggering a recession. "We are committed to maintaining the strength of our economy by supporting maximum employment and returning inflation to our 2% target," Powell told reporters in Washington. Economic activity data such as retail sales and the second quarter GDP confirmed this. Nonetheless, the large-scale rate cut surprised some market participants. Yields on government bonds rose slightly as concerns emerged that the Fed's efforts might further fuel economic growth. Benchmark yields on 2-year bonds rose by 4 basis points to 3.579%, while 10-year bonds stood at 3.692%. The US Dollar Index, which measures the dollar against a basket of six global currencies, was last at 100.565. "The Fed made a bold move as the inflation rate in the service sector is still above average and the US economy relies on China to continue reducing goods prices," said George Lagarias, Chief Economist at Forvis Mazars in London. "A 'double cut' requires further aggressive measures and leaves little room if prices rise again." Despite these concerns, Wall Street shows a clear response to the Fed's decision. With economic growth of 2.9%, according to the Atlanta Fed's GDPNow tracker, and forecasted corporate earnings by the end of the year and throughout 2025, market sentiment looks positive. The S&P 500 was traded for an increase of about 84 points at the opening. Contracts tied to the Dow Jones Industrial Average indicated a rise of 455 points, while the technology-oriented Nasdaq was expected to gain 388 points. Other Wall Street analysts: Optimism was also evident in overseas markets. The British FTSE 100 rose 1.16% in London ahead of the Bank of England's upcoming rate decision. The regional Stoxx 600 Index increased by 1.08% in Frankfurt. In Asia, the Nikkei 225 reached a two-week high, rising by 2.13% ahead of tomorrow's rate decision by the Bank of Japan. The MSCI ex-Japan Index for the region also performed positively, with a 1.24% increase by the close of trading.