After closing up 0.6% on Wednesday, the S&P/ASX 200 Index (ASX: XJO) is in the green again today.
In morning trade, the benchmark Aussie index is up 0.3% at 8,472.1 points, within a whisker of topping its prior record closing high.
Here's how Australia's biggest listed companies are performing at this same time:
- Commonwealth Bank of Australia (ASX: CBA) shares are up 0.4%
- The BHP Group Ltd (ASX: BHP) share price is up 0.8%
- Shares in ASX 200 biotech giant CSL Ltd (ASX: CSL) are up 0.2%
This comes despite the US Federal Reserve opting to keep interest rates on hold yesterday (overnight Aussie time).
While that decision was widely expected, the prospect of higher rates for longer in the world's top economy saw the S&P 500 Index (SP: .INX) close down 0.5%, with the tech heavy Nasdaq Composite Index (NASDAQ: .IXIC) also ending the day 0.5% lower.
ASX 200 investors may be shrugging of these headwinds, still buoyed by yesterday's Aussie inflation print, which upped market expectations of a February rate cut from the Reserve Bank of Australia.
As for US interest rates…
What happened at the US Federal Reserve meeting?
In a unanimous decision, the Federal Open Market Committee voted to keep the official US interest rate on hold in the range of 4.25% to 4.50%.
With inflation in the US coming back into target range, the Fed cut rates by 1.00% in the latter months of 2024. However, Jerome Powell indicated the world's most influential central bank is in no rush to reduce rates in 2025.
The US economy is performing well with unemployment remaining low, and the impacts of President Donald Trump's sweeping policy changes on the economy remain to be seen.
"We do not need to be in a hurry to adjust our policy stance," Federal Reserve Chair Jerome Powell said of the decision that ASX 200 investors will be mulling over today.
According to Powell (quoted by Bloomberg):
The committee is very much in the mode of waiting to see what policies are enacted. We need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be.
Gregory Daco, chief economist for EY, noted, "They're skipping a rate cut. But they want to retain as much optionality as possible to adjust the fed funds rate further through the year."
When might ASX 200 investors expect a 2025 Fed interest rate cut?
The Fed's overnight decision has dimmed the odds ASX 200 investors will see the central bank cut interest rates at its March meeting. Meaning we'll likely be waiting until at least May or June. Or possibly longer.
In fact, Wells Fargo's Jay Bryson believes the Fed is likely to keep rates on hold until September.
According to Bryson (quoted by The Australian Financial Review):
With inflation remaining stubbornly above target, we see little reason for the [Federal Open Market Committee] to cut rates in the near term. But with policy remaining somewhat restrictive, albeit not as restrictive as a few months ago, we are penciling in another 50 basis points of easing by the end of 2025 (25 bps in September and another 25 bps in December).
Thereafter, we look for the FOMC to maintain its target range at 3.75% to 4.00% through the end of 2026.
Evercore ISI's Krishna Guha, however, expects ASX 200 investors may still see the Fed ease in the first half of 2025.
Guha said:
We would still not exclude a March cut, though the statement and the emphasis on the need to wait and see what Trump policies bring do suggest the wider group of Fed officials are leaning more to June for the next decision point.
