Stocks on Wall Street held their gains as the US Federal Reserve kept its key interest rate unchanged, taking a wait-and-see approach on how US President Donald Trump’s tariff programme will play out through the year.
The federal funds rate was left in a range of 4.25%-to-4.5% with the trajectory for rates indicating a slim majority of board members have pencilled in at least two more cuts this year. The central bank pared back its forecast for US economic growth and sees a faster pace of inflation.
Chair Jerome Powell told media after the announcement that the tariff programme will have some impact on inflation, but it’s very challenging to work out exactly how much.
The prospect of lower rates spurred gains on Wall Street, with the Nasdaq Composite up 1.4% at 7.30am in Auckland and S&P 500 advancing 1%. The greenback pared earlier gains, with the kiwi trading at 58.01 US cents at 7.40am from 58.12 cents yesterday.
“US treasury yields were 3-to-4 basis points higher across the curve ahead of the decision and moved lower immediately afterwards and the US dollar pulled back off the session highs,” Bank of New Zealand senior interest rate strategist Stuart Ritson said in a note. “The market is pricing around 60 basis points of easing by the end of the year compared with 55 basis points earlier in the session.”
Central banker speak
The Fed’s decision follows the Bank of Japan, which similarly held off to see how the tariff programme develops, while the Bank of England’s review on Thursday rounds out the major central banks watched by investors, with the Swiss and Swedish monetary authorities also due to review policy.
Stocks in Europe were generally stronger ahead of the Fed decision, with the incoming German government’s spending programme supporting gains for the DAX 30 index.
Investors were also buoyed by US President Trump’s discussion with his Ukrainian counterpart Volodymyr Zelenskyy, stoking optimism that a peace deal with Russia can be brokered.
New Zealand’s December quarter gross domestic product figures are due today, with economists expecting the economy will show its first step on the path to recovery as lower interest rates stoked activity and household and business sentiment started to revive.
“After the significant contraction through the middle of last year, the economy is expected to rebound modestly in the December quarter,” BNZ’s Ritson said.
Australian futures are pointing to a 0.7% gain for the ASX/S&P 200 index, while the S&P/NZX 50 index has several heavyweight companies shedding rights to their dividends today, including The a2 Milk Co, Spark New Zealand and Vector.
Reporting by Paul McBeth. Image from David Vives on Unsplash.