The stock market had a good day on Wednesday, with the overall market (S&P 500) reaching a new high. Key inflation data is expected to be released on Friday, and many experts are watching to see if it might encourage the Federal Reserve to slow down how quickly it's raising interest rates. Several companies saw big changes in their stock prices, with MC soaring and GameStop plummeting.
The Federal Reserve is carefully considering interest rate cuts while balancing concerns about inflation. Having previously made mistakes by prematurely loosening policy, the central bank aims to avoid repeating those errors. While the economy is showing signs of growth, officials recognize the risks of allowing inflation to persist for too long. Therefore, they may take a cautious approach to rate adjustments, keeping them higher for a longer period to ensure price stability.
To combat high inflation and a plummeting currency, Nigeria's central bank has hiked interest rates to 24.75%. Despite a recent modest improvement, the naira still remains weakened compared to the dollar. The bank's members had varying views on the inflation drivers, leading to a wide range of proposed rate increases. The bank intends to continue tightening and prioritizes tackling inflation over economic growth concerns. Further hikes are expected in May and July before the tightening cycle concludes.
Investors are adjusting their expectations for future interest rate movements due to recent economic data and the Federal Reserve's policy decisions. The market previously anticipated six rate cuts, but now only three are expected. Inflation remains high, leaving investors uncertain about the timing and extent of rate cuts. A cautious approach is advised, with gradual adjustments to bond portfolios recommended. Domestic U.S. fixed income investments are seen as relatively stable, while international investments may provide opportunities but require careful consideration.
The Federal Reserve is considering holding off on interest rate cuts due to sticky inflation. Former Fed Vice Chair Richard Clarida believes that if the Fed were focusing on the higher-than-expected Consumer Price Index, they wouldn't even be discussing rate cuts. He advises the Fed to be cautious and data-dependent, as inflation may not be decreasing as quickly as anticipated.
The Federal Reserve has kept interest rates the same, disappointing many who hoped for cuts. As a result, borrowing costs for things like mortgages, credit cards, and student loans will remain high for now. While inflation has eased slightly, it's still a concern, and the Fed wants to make sure it's under control before lowering rates. Once rates do start to come down, borrowing costs may gradually decrease, but they're unlikely to drop significantly.
Interest rates for credit cards, savings accounts, and mortgages remain elevated despite the Federal Reserve holding off on rate cuts. Credit card rates could stay high for the rest of 2024, while savings accounts continue to offer competitive interest rates but may moderate slightly over time. Mortgage rates, on the other hand, could decline to around 6% by year-end, potentially easing the tight housing market.
The Swiss National Bank has surprisingly lowered interest rates to 1.5%, becoming the first advanced economy to do so amid persistent inflation. Despite inflation remaining below 2%, the bank projects it to stay low over the next few years, giving them room to ease monetary policy. The move comes as Switzerland's economic growth is expected to be modest in the coming quarters, with uncertainty stemming from weaker activity abroad.
The Fed has kept interest rates steady at their highest level in over 23 years. However, they indicated that they may begin lowering rates by June due to the economy still growing and inflation starting to ease. This change in outlook is a result of higher-than-expected inflation data at the start of 2023. The Fed's projections show a likelihood of three quarter-percentage point cuts in 2023 and possibly more in subsequent years.
The Federal Open Market Committee has released its latest statement comparing its previous meeting in January with its recent gathering on Wednesday. Notably, the new statement acknowledges the "ongoing impact of the COVID-19 pandemic" and signals a more cautious stance compared to January.
Despite a more positive economic growth outlook, the Federal Reserve still predicts three interest rate cuts in 2024. This is because inflation is still higher than the Fed's target of 2%, and recent data suggests it may not be declining as quickly as hoped. The median projection for the federal funds rate is 4.6% in 2024, down from the current 5.25%-5.50% range.
The Federal Reserve hinted at possible rate cuts this year, leading to a decline in Treasury yields. However, the Fed will monitor data and adjust if inflation persists or the labor market weakens. The 10-year Treasury yield is stable but could drop in the future. For now, investors see the 5-7 year Treasury bonds as offering attractive yields due to expected inflation moderation and rate cuts. The fixed income market is anticipated to remain stable.
