Next Tuesday, S&P/ASX 200 Index (ASX: XJO) investors will discover the Reserve Bank of Australia's next interest rate decision.
As it stands, Australia's official rate remains at 4.35%.
After a series of 13 rate hikes commenced by the RBA in May 2022 to quash soaring inflation, that sees the benchmark interest rate at the highest level since December 2011.
Now, stocks have broadly performed exceptionally well amid these high rates. But interest rates do matter.
Yesterday, the ASX 200 closed up 0.6% to end the day at a new all-time closing high of 8191.9 points. In afternoon trade today, the benchmark index is up 0.3% at 8,218.7 points.
These moves higher follow Wednesday's decision by the United States Federal Reserve to cut US interest rates by a jumbo 0.50%. This brings the official US funds rate down to the new range of 4.75% to 5.00%.
While US stock markets closed lower on the day, they played catchup on Thursday (overnight Aussie time), with the S&P 500 Index (SP: .INX) rallying 1.7% and the tech-heavy Nasdaq Composite Index (NASDAQ: .IXIC) soaring 2.5% by market close.
Which brings us back to our headline question.
Can ASX 200 investors expect the RBA to follow the Fed and cut interest rates next week?
Will ASX 200 investors see the RBA cut interest rates on Tuesday?
We turn to the experts to get a better idea of what to expect from the RBA next week.
Rob Talevski, CEO of Webull Securities Australia, told the Motley Fool, "The 50 basis point rate cut that was announced by the US Federal Reserve … will no doubt fuel political pressure levied to Australia's RBA."
But Talevski doesn't expect ASX 200 investors to see the RBA follow the Fed's rate-cutting lead next week.
"We're comparing apples with oranges and, if anything, Australia is being punished with sticky inflation that is a result of too little action in the way of high interest rates, not too much," he said.
Talevski added:
At 3.8%, annual inflation in Australia has not fallen to its target range of 2% to 3%, and rates remain well below than that of the US even after the latest cut, illustrating our more mild approach to reducing inflation.
The strength of the Aussie jobs market may also dissuade the RBA from gifting ASX 200 investors with an interest rate cut next week.
Commenting on this week's Fed rate cut and next week's RBA meeting, KPMG chief economist Brendan Rynne said (quoted by The Australian Financial Review), "Facing a slowing economy, the Fed has decided it needed to loosen monetary policy settings to allow households and investors to increase spending."
Rynne continued:
The situation in Australia remains different, however. Annual inflation here is still tracking at 3.5%, and with the cash rate still at 4.35%, our real policy rate has been significantly lower – and therefore much less contractionary – than the US.
Following on the strong jobs reports, JP Morgan chief economist Ben Jarman also expects the RBA will leave rates on hold at 4.35% on Tuesday.
So, when might ASX 200 investors see interest rates come down in Australia?
According to Commonwealth Bank of Australia (ASX: CBA), that's now likely in December. In light of this week's ABS unemployment data, CBA doesn't expect a rate cut next week or at the RBA's November meeting.
