The S&P/ASX 200 Index (ASX: XJO) is unlikely to post a new record high today.
But with another big day of gains looking to be in the bag, the benchmark index is getting enticingly close.
In afternoon trade, the ASX 200 is up 0.8% at 7,463 points
That's just 1.2% away from exceeding the 3 February levels, which would see the index post new one-year highs.
And the ASX 200 is now less than 2.2% below the all-time highs reached in late August 2021, which came as stimulus fuelled markets roared back from the early 2020 pandemic crash.
So, what's driving the latest bout of investor enthusiasm?
While it may sound contradictory, it looks to be the overnight decision from the US Federal Reserve to boost interest rates yet again.
ASX 200 following Dow Jones higher post Fed rate hike
While most Aussies were asleep, the Fed announced a 0.25% interest rate hike. That's the 11th rate increase from the world's most watched central bank since it began the current tightening cycle in March 2022 to tamp down soaring inflation.
The new benchmark rate in the US now stands at 5.5%. That's the highest it's been in 22 years.
US markets had a mixed reaction, with the Nasdaq Composite Index (NASDAQ: .IXIC) falling 0.1% while the Dow Jones Industrial Average Index (DJX: .DJI) gained 0.2%.
ASX 200 investors, fortunately, look to be taking their lead from the Dow Jones.
While Fed chair Jerome Powell left the door open to future rate hikes, his language was more dovish than in recent speeches.
Commenting on the Federal Open Market Committee's next meeting on 20 September, he said:
All of that information is going to inform our decision as we go into that meeting. It is certainly possible that we would raise again at the September meeting, if the data warranted. And I would also say it's possible that we would choose to hold steady at that meeting.
Bloomberg chief US economist Anna Wong said markets could well see the Fed skip lifting interest rates again in September, but much depended on how inflation shaped up in the interim.
According to Wong (courtesy of Bloomberg):
While the lack of substantive changes to the policy statement suggests the majority of officials still want to keep the door open for another rate hike, Chair Jerome Powell's somewhat dovish performance at the post-meeting news conference suggests a willingness to skip a hike at the September meeting, provided inflation data continue to be soft.
With Australia's latest CPI figures showing headline inflation slowing to 6%, ASX 200 investors are also increasingly pricing in an end to the series of rate hikes from the Reserve Bank of Australia.
