US Fed bubble gets burst as too early to be talking about rate cuts

(Alliance News) - Last week's bubble has been burst, with US Federal officials saying it is too early to be talking about interest rate cuts.

Save for London's flagship index, global equity markets largely began the week on a more downbeat note, as last week's global equity rally triggered by the US Federal Reserve's dovish pivot faded, succumbing to perhaps to more hawkish comments from Fed officials at the end of the week.

The FTSE 100 edged 0.2% higher, but the CAC 40 in Paris was down 0.5% and the DAX 40 in Frankfurt was down 0.4%.

After the Fed had signalled rate cuts of as much as 75 basis points next year, some officials attempted to reign in market expectations.

New York Federal Reserve President John Williams told CNBC's "Squawk Box" that the central bank isn't "really talking about rate cuts right now." Separately, Atlanta Fed President Raphael Bostic, who votes on monetary policy next year, told Reuters that he expects two rate cuts in 2024 but not starting until the third quarter.

"That burst a few traders' bubbles, coming after a week which saw US bond yields tumbling in anticipation of rate cuts in 2024," said Steve Clayton, head of equity funds at Hargreaves Lansdown.

Meanwhile, Michael Hewson, at CMC Markets, said: "Given where the US economy is now it's surprising that the Fed are said to be to start to be thinking in terms of cutting rates simply because with the economy currently where it is, there is currently no need. With GDP at 5.2% in Q3, unemployment at 3.9%, and weekly jobless claims at just over 200,000 the risk of inflation reigniting is clearly still a concern for some policymakers."

We are still not done with interest rate decisions for 2023, though. Another key focal point for the week will be the Bank of Japan's monetary policy decision to be announced on Tuesday.

According to a Bloomberg report last Monday citing "people familiar with the matter", the BoJ is likely to keep its ultra-loose monetary policy in place, despite recent market speculation that the negative rate may be scrapped. This is because the central bankers have yet to see enough evidence of wage growth to support sustainable inflation, Bloomberg reported.

"There is nothing more than a slim probability for the BoJ to exit negative rates this week, but investors are eager to hear further details about how and when the BoJ will leave the negative rate territory," said Swissquote Bank senior analyst Ipek Ozkardeskaya.

By Sophie Rose, Alliance News senior reporter

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