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The US stock market rocketed higher as the latest report from the US Federal Reserve was released, with a positive reaction to the latest inflation data. The Fed has decided to keep its benchmark interest rate steady at 5.50%, contrary to prior expectations of three rate cuts for the year, now projecting only one cut.
Despite such a hawkish tone against rapid rate cuts, market participants remained optimistic because there is a noticeable drop in inflation for May 2024.
Related article: Interest rate tug-of-war for central banks – Hawkish vs dovish
Fed policymakers described the progress on inflation as “modest” in their statement. Notably, seven out of 19 officials anticipate one rate cut this year, while four see no cuts at all.
The remaining eight central bankers favor two reductions in borrowing costs in 2024. With only four more meetings left in the year, projections of the Fed indicate a more measured approach to monetary easing.
Despite the lowered expectations for rate cuts, major indices surged. The S&P 500 (Symbol: SP500) was up by 1% in mid-session and the Nasdaq Composite (Symbol: NAS100) surged by 1.8%.
The image above shows the positive response in the US stock market, as observed on the VT Markets app.
The US stock market will benefit from the positive sentiment generated by the declining inflation. However, any unexpected economic data or geopolitical events could introduce volatility. If inflation continues to trend lower, the market could see sustained growth.
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