The S&P/ASX 200 Index (ASX: XJO) is leaping to new record highs today.
After finishing up 1.8% yesterday at a new all-time closing high of 8,092.3 points, the ASX 200 is up 0.7% in morning trading on Thursday, currently at 8,144.8 points.
This comes following a strong run in United States markets overnight, with the S&P 500 Index (SP: .INX) gaining 1.6% and the tech-heavy Nasdaq Composite Index (NASDAQ: .IXIC) soaring 2.6%.
And it looks like investors have US Federal Reserve chair Jerome Powell to thank.
ASX 200 leaps on Fed interest rate cut speculation
Well after the ASX 200 ended trading yesterday, the Federal Open Market Committee (FOMC) opted to hold the official US interest rate in the range of 5.25% to 5.50%, a level first reached in July 2023.
That leaves US interest rates on hold at the highest level in more than 20 years.
So, why are US stocks and the ASX 200 rallying?
Well, because markets have now dramatically upped the odds of a Fed rate cut in September when the FOMC next meets.
Addressing the media after the Fed meeting, Powell said (courtesy of Bloomberg):
The question will be whether the totality of the data, the evolving outlook, and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labour market. If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.
But the Fed chair wasn't ready to commit to that easing path just yet, saying the bank needed "greater confidence" that inflation was sustainably heading lower before cutting rates.
Adding to the uncertainty, he said he could "imagine a scenario in which there would be everywhere from zero cuts to several cuts [in 2024] depending on the way the economy evolves."
The FOMC added in a statement:
In recent months, there has been some further progress toward the committee's 2% inflation objective. The committee judges that the risks to achieving its employment and inflation goals continue to move into better balance.
What are the experts saying?
Commenting on expectations of a Fed interest rate cut in September that could be offering more tailwinds for the ASX 200, Hebe Chen, an analyst at IG Markets, said (quoted by Bloomberg):
It's certainly going to be a double-reward day for the Asian market. The certainty of the September rate cut, in the most specific way ever, will dissipate any remaining concerns and instil the strongest confidence seen in months to the market participants.
Peter Boockvar at the Boock Report added, "Powell so wants to say today 'let's do it', but at the same time he knows he doesn't have to commit just yet before he gets more time and data."
With today's intraday gains factored in, the ASX 200 is up 9.2% over 12 months.
