(BFM Bourse) – The American central bank lowered its rates by a quarter of a point as expected. But its members’ projections show that only two rate cuts are expected next year. The euro fell below $1.04 on Wednesday evening.
The American Federal Reserve (Fed) is once again calling the shots (but especially the rain) on the market.
For its last monetary policy meeting of the year, the American central bank made a restrictive turn, which weighed down Wall Street. The S&P 500 fell 2.95% on Wednesday evening and the Nasdaq Composite fell 3.56%.
The trend is spreading this Thursday morning to the European markets and in particular to the Paris Stock Exchange. The CAC 40 thus fell by 1.3% in the first exchanges in Paris.
On Wednesday evening, the Fed lowered its key rates by a quarter of a percentage point, which was expected by almost 99% by investors.
However, this rate cut was not unanimous. “The President of the Cleveland Fed, Beth Hammack, voted against because she would have preferred that the Fed not lower its rates,” underlines Bastien Drut, of CPR AM.
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Inflation forecasts raised
It is above all the economic and monetary projections (the “dots plots”) of the various members of the American central bank which have scalded investors. This document, which is published quarterly and is not strictly speaking a forecast, shows that the median expectation of Fed members for 2025 incorporates only 50 basis points (0.5 percentage points) of cuts key rates.
However, in previous dot plots, in September, members anticipated a rate cut of 100 basis points in 2025.
In addition, Fed members revised their inflation projections upwards, notably counting on a 2.5% increase in the PCE index (an alternative measure) of inflation, compared to 2.1% previously. .
“We believe the sharp increase in inflation projections for 2025 reflects Fed members’ concerns about the implementation of tariffs (by the Trump administration) or other inflationary policy measures next year “, judge Barclays.
“This restrictive tone was followed by Chairman (Jerome) Powell at the press conference, who said that the last rate cut ‘was a tighter decision,’ and that they were ‘at a point where it would be appropriate to slow down the pace of rate cuts,” explains Deutsche Bank.
The euro is collapsing
“In particular, Jerome Powell has repeatedly stressed that more ‘inflation progress’ is needed to cut rates further, and he has said he is not going to settle for inflation above 2%,” continues the German establishment.
“After only three rate cuts, the Fed says it is already entering a new phase in its monetary tightening,” concludes Bastien Drut. “The recent halt to disinflation and the uncertainties linked to the policies of the future administration will push the Fed to be significantly more cautious. It will only lower rates again in the event of further tangible progress on the inflation front. “inflation”, he concludes.
These restrictive announcements from the Fed propelled American bond rates. The yield on the 10-year US Treasury bond rose from 4.39% to over 4.5% in a matter of minutes.
The dollar jumped and, symmetrically, the euro fell. The euro zone currency plunged 1.3% against the dollar on Wednesday, a gigantic fall for the foreign exchange market, where variations are contained due to colossal volumes (trillions of dollars).
The euro fell to $1.0352, its lowest level in almost two years. This Wednesday, the euro regains some strength against the dollar, with an increase of 0.46% to 1.04 dollars.
Julien Marion – ©2024 BFM Bourse
