ASX 200 off to the races amid 2024 Fed rate cut hopes

The ASX 200 is having another strong run today.

Bernd Struben

Author bio Bernd Struben earned his BA in economics from the University of Michigan in 1991, with post-graduate studies in environmental economics at the University of Connecticut. Over the years he’s written about and analysed the tourism industry in the Caribbean; Europe’s commercial real estate markets; and, since moving to Australia in 2010, global and Aussie share markets. Bernd studies geopolitical and macroeconomic trends, alongside sector and company specific data, to gauge what he believes could be tomorrow's best investments. In his free time, you might find Bernd at the beach with his family or working on his next science fiction novel. Areas of expertise Australian and global share markets Macroeconomic and geopolitical trends Real estate Education Economics, University of Michigan Favorite investment quote "The four most dangerous words in investing are: 'This time it's different." — Sir John Templeton

Published March 21, 2024 11:30 am AEDT

The S&P/ASX 200 Index (ASX: XJO) is leaping higher on Thursday, up 0.9% in late morning trade.

The Aussie benchmark index is joining in the overnight US stock market rally.

Spurred by hopes of three coming interest rate cuts from the US Federal Reserve, the S&P 500 Index (SP: .INX) closed up 0.9%, marking yet another new all-time high.

Tech stocks continued their bull run as well, with the Nasdaq Composite Index (NASDAQ: .IXIC) gaining 1.3% overnight.

We're seeing a similar moment here in Australia, with the S&P/ASX All Technology Index (ASX: XTX) up 1.1%, outpacing the ASX 200.

This comes on the heels of the US Federal Open Market Committee (FOMC) meeting.

Here's what we know.

A man leans forward over his phone in his hands with a satisfied smirk on his face although he has just learned something pleasing or received some satisfying news. — Image source: Getty Images

ASX 200 investors buoyed by US interest rate cut hopes

As widely expected, there was no interest rate cut from the Fed. The US benchmark rate remained unchanged in the range of 5.25% to 5.50%.

And Fed chair Jerome Powell may have held back an even stronger rally in US stocks and the ASX 200 by stressing that the central bank is still awaiting concrete evidence that inflation in the world's biggest economy is retracing to its 2% target.

But speaking to the media after the Fed's interest rate decision was announced, Powell said it was likely the bank would cut rates "at some point this year".

Addressing the confidence the central bank needs that inflation is on its way back to 2%, Powell said (quoted by Bloomberg), "It is still likely in most people's view that we will achieve that confidence and there will be rate cuts."

Commenting on the outlook for Fed interest rate cuts that could offer further tailwinds for the ASX 200, the economics team at Commonwealth Bank of Australia (ASX: CBA) said (courtesy of The Australian Financial Review):

Resilient economic conditions mean we now expect the FOMC to start its rate cut cycle in July rather than in May. We now expect the FOMC to cut the funds rate by only 75 basis points (ie. three 25 basis point cuts) to 4.75% by the end of 2024.

However, we expect an extended rate cut cycle in 2025 until the funds rate reaches 3%. At 3%, the funds rate would be at the top end of the range of estimates of the 'neutral interest rate'.

With the Reserve Bank of Australia (RBA) also having given the ASX 200 a boost this week amid signs that interest rates have likely topped out, it's looking like more of a question of 'when' rather than 'if' the central banks will begin their easing cycle in 2024.

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