The U.S. dollar strengthened, long-term bond yields rose, and Asian markets gained momentum after the U.S. Federal Reserve announced a 50-basis-point rate cut, indicating that future rate reductions would follow a measured approach.
Although the S&P 500 briefly hit an all-time high overnight, it closed slightly lower, with futures advancing by 0.67% during Asian trading. Nasdaq futures climbed by 1%, while Japan’s Nikkei soared 2.5%. Stock markets in Australia and Indonesia also reached record highs.
The Fed lowered the target range for its benchmark interest rate by 50 basis points to 4.75-5%, aligning with market expectations. The dollar initially fell to a two-and-a-half-year low against the British pound but quickly recovered. Early Thursday, the dollar rose by nearly 1% against the yen, reaching 143.55 yen, while the euro traded at $1.1097.
U.S. 10-year Treasury yields increased by nearly eight basis points to 3.719%, and gold prices briefly touched a record high of just under $2,600 per ounce before stabilizing at $2,559.
The Fed’s rate cut is anticipated to boost consumer spending and support the U.S. economy, with other central banks expected to follow suit by easing their monetary policies. Jason Wong, a strategist at BNZ in Wellington, noted that the focus was not solely on the size of the rate cut but on the Fed’s guidance for future policy.
“The key isn’t whether it was 25 or 50 basis points, but the forward guidance. The Fed has outlined a path where the economy is still performing well. This wasn’t a reactive 50 basis point cut,” Wong said.
The Fed also adjusted its median interest rate projection downward compared to its July forecast, with Fed Chair Jerome Powell stressing the importance of flexibility.
“This decision shouldn’t be viewed as setting a new pace,” Powell told reporters. “We are adjusting policy to a more neutral level, moving at a pace we consider suitable for current economic conditions.”
Asian markets responded positively, with MSCI’s Asia-Pacific index outside Japan rising 0.3%. Markets in Hong Kong and China posted gains, buoyed by optimism that Beijing may introduce stimulus measures following the Fed’s decision. Chinese bond yields also dropped.
