The FTSE 100 is set for a boost after the US Federal Reserve waved through a 50 basis point rate cut after market close last night.
The cut was the first since 2020 and suggested that rate-setters were anxious about keeping the world’s largest economy on track for a soft landing.
Traders had been concerned that the Fed had waited too long to cut interest rates, causing unnecessary damage to the US economy.
However, forecasts released alongside the rate decision—the so-called ‘dot-plot’ charts—showed the labour market was expected to remain relatively solid even while inflation returned to the two per cent target.
Kathleen Brooks, research director at XTB, said the Fed’s decision was a “precautionary move” to ensure the US did not face a larger than necessary downturn.
“The labour market is actually in solid condition, and our intention with our policy move today is to keep it there. To me, the logic of this — both from an economic standpoint and also from a risk-management standpoint — was clear,” Jerome Powell, chair of the Fed, said after the decision.
Despite the large cut, US equities actually closed a bit lower yesterday. The S&P 500 fell 0.29 per cent while the Nasdaq lost 0.31 per cent.
However, Asian markets posted solid overnight gains, with both the Nikkei and the Hang Seng gaining over two per cent.
European markets were seen higher too before Thursday’s trading, with the FTSE 100 set to open around 0.9 per cent higher.
The main focus on Thursday will be the Bank of England’s latest interest rate decision. Traders think the Bank Rate will be left on hold, but the odds of a 25 basis point cut have crept up over the past few days.
Policymakers at the Bank are likely to be wary given signs that domestic inflationary pressures are still running fairly hot.
Data out yesterday, for example, showed that services inflation rose to 5.6 per cent in August, up from 5.2 per cent the month before. The UK’s labour market also remains relatively tight.