The Fed has just marked a decisive turning point in its monetary policy, triggering a real shock wave on the European markets. After months of tightening, the American institution decided to ease the pressure, and the result was not long in coming: European stock markets are soaring. A palpable relief has spread across the financial markets, giving an unexpected boost to the indices. But this decision is part of a broader context of global economic tensions, where each move by the Fed is scrutinized.
A decisive shift by the Fed propels Europe into the green
The moment investors have been waiting for has finally arrived: the Fed has given up ground. After a cycle of eleven consecutive rate hikes, the US central bank has opted for a 0.5 percentage point cut.
A strong gesture that immediately reassured the European markets, which posted impressive gains from the opening.
The CAC 40 in Paris climbed by 2.07%, Milan gained 1.02%, and London saw its index rise by 1.09%. But it was undoubtedly the German Dax index that stole the show by crossing the symbolic 19,000 point mark, reaching a historic level.
The move marks a crucial turning point for financial markets. Investors, long worried about soaring inflation and geopolitical tensions, are finally breathing. Not only has the Fed eased policy, but Fed Chairman Jerome Powell has struck a measured tone, saying the easing may be temporary.
This caution leaves the door open to future adjustments, which reassures investors all the more, because they now know that the Fed will navigate with caution.
The rate cut comes at a time when U.S. economic indicators were showing signs of slowing.
By easing the pressure, the Fed hopes to strike a delicate balance between supporting employment and controlling inflation. And while European markets have reacted enthusiastically, caution remains, particularly on Wall Street, where the reaction has been more mixed.
All eyes on the Bank of England
While the Fed has opted for easing, the Bank of England (BoE) takes a very different approach.
This Thursday, it left its key rate unchanged at 5%, marking a pause in its cycle of reductions. A decision that might seem contrary to that of the Fed, but which can be explained by a still fragile inflationary context in the United Kingdom.
British inflation held steady at 2.2% in August, close to the BoE's target, but tensions remain.
The Governor Andrew Bailey recalled that although rate cuts are envisaged in the medium term, it is essential not to rush things.
A fine balance must be struck between supporting growth and controlling inflation, especially since energy prices are no longer slowing as quickly as they did last year.
For European markets, the stability of British rates is good news, as it gives hope for a gradual return to more favourable monetary conditions.
But the BoE's caution contrasts with the Fed's boldness, and this could introduce some volatility in the coming weeks, particularly in London's financial markets.
Investors will also be closely monitoring the Bank of England's upcoming decisions, with its November meeting likely to be a turning point. If inflationary pressures continue to ease, another rate cut could be on the cards. However, much will depend on future economic indicators, and markets will remain on high alert.
Maximize your Tremplin.io experience with our 'Read to Earn' program! For every article you read, earn points and access exclusive rewards. Sign up now and start earning benefits.
