Morgan Stanley analysts believe the Federal Reserve’s recent 50 basis point (bp) rate cut does not signal a major change in its response mode and will have limited impact on other global central banks.
They note that while the Fed’s move was designed to show its commitment to staying ahead of inflation risks, the general expectation remains a series of 25bp cuts going forward.
According to Powell, the Fed remains confident about the health of the economy and the labor market, with further cuts dependent on upcoming data such as payrolls and consumer spending.
The Morgan Stanley note emphasizes that the global response of central banks will continue to be influenced by domestic conditions.
For example, Brazil’s central bank recently raised interest rates due to strong growth and a weaker currency, both of which signal inflationary pressures.
Instead, Morgan Stanley says Indonesia’s central bank cut interest rates after its currency appreciated, reducing inflation risks.
These examples are said to show how emerging markets balance global financial conditions with local economic factors.
In developed markets, Morgan Stanley analysts expect little immediate reaction to the Fed’s move.
In Europe, the European Central Bank (ECB) is expected to continue its cautious approach, with another cut likely in December.
The Bank of England (BoE), which paused interest rate cuts in September due to inflation concerns, is expected to resume cuts in November. The Bank of Japan (BoJ), meanwhile, is likely to hold steady until early 2024.
While the Fed’s 50 basis point cut hints at possible major changes ahead, Morgan Stanley stresses that it does not indicate a fundamental change in strategy.
The easing cycle is still seen as a positive for risk assets, but uncertainties remain, particularly around the upcoming US election and its potential impact on 2025 forecasts.
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Reference;
Acharya, N. (2024) Fed rate cuts increase odds of 90s-style stock market meltup, Yardeni says By Investing.com, Investing.com. Investing.com. Available at: https://www.investing.com/news/economy/fed-rate-cuts-increase-odds-of-90sstyle-stock-market-meltup-yardeni-says-3630054 (Accessed: 28 September 2024).
