Global Markets: Wall Street Rises After Fed’s Estimates

On Wall Street, stock prices rose on Wednesday after the U.S. central bank maintained its estimates for interest rate cuts, and its chairman indicated that a significant economic downturn is not expected. The Dow Jones index strengthened by 0.92 percent, to 41,964 points, while the S&P 500 rose by 1.08 percent, to 5,675 points, and the Nasdaq index increased by 1.41 percent, to 17,750 points. At the regular meeting, Fed leaders decided on Wednesday, as expected, to keep the key interest rates unchanged in the range of 4.25 to 4.50 percent.

However, investors were encouraged by the fact that Fed leaders maintained last year’s estimate that interest rates will be reduced twice in 2025 by 0.25 percentage points each time. Investors were also focused on the Fed’s new estimates, which are not particularly bright as the economic growth forecast for this year was reduced from the previous 2.1 to 1.7 percent, while the core inflation rate estimate was increased from 2.5 to 2.8 percent.

Although many analysts have warned in recent weeks about the increased risk of recession due to the trade war that Washington is waging on multiple fronts, Fed Chairman Jerome Powell stated at a press conference that a significant economic downturn is unlikely. He emphasized that inflation estimates have largely increased due to the trade war, but that the Fed is well-positioned to respond quickly if economic data worsens.

– If the labor market unexpectedly weakens or if inflation decreases faster than expected, the Fed can accordingly ease monetary policy – said Powell.

However, if the economy remains strong and inflation does not continue to decline towards the targeted 2 percent, the Fed can comfortably keep interest rates at elevated levels, concluded Powell. The Fed chairman’s messages encouraged investors, who have been uncertain for weeks as U.S. President Donald Trump leads a trade war with major trading partners, while economic growth slows and inflation remains persistent.

– The market was hoping for anything that would alleviate uncertainty, and I would say that Powell succeeded in that. Inflation estimates have been slightly increased, and economic growth estimates slightly decreased, so I think the Fed did not contribute to the uncertainty in the market that has recently pressured stocks – says Russell Price, an economist at Ameriprise Financial.

And on most European exchanges, stock prices also rose yesterday. The London FTSE index strengthened by 0.02 percent, to 8,706 points, while the Paris CAC rose by 0.70 percent, to 8,171 points. The Frankfurt DAX, on the other hand, weakened by 0.40 percent, to 23,288 points.