As I mentioned earlier, the chair of the US Federal Reserve made some comments at a forum there that have rattled investors.
“More recent data shows solid growth and continued strength in the labor market, but alsoa lack of further progress so far this year on returning to our 2% inflation goal,” Jerome Powell told a panel.
As Kyle Rodda from Capital notes, it seems the Fed is “changing its tone”.
“And is beginning to acknowledge that interest rates may not be cut as deeply this year as previously thought —or perhaps even at all,” he adds.
“The markets dialled back the implied probabilities of rate cuts this year in the US to less than two, with the rate-sensitive two-year yield touching 5% again.”
But as Diana Mousina from AMP also has noted this morning, this sentiment doesn’t need to filter to Australia.
“It is often thought that the US Federal Reserve Bank is the first to move interest rates in a tightening or loosening cycle,” she writes.
“Economic growth in Canada, New Zealand, the Eurozone and Australia (to a lesser extent) has slowed noticeably. In comparison, the US economy has held up better.
“The US economy is often seen as a leading indicator for the rest of the world, from impact to global economic growth and financial markets.
“But the Fed is unlikely to be the first major central bank to start cutting interest rates in this cycle, just as it wasn’t the first major bank to hike rates after the pandemic.
“Investors need to remember that domestic growth conditions are the primary factor behind a central bank’s decision on monetary policy.”
