The Swiss franc swooned more than 1% to a four-month low against the dollar, lifting Swiss stock benchmarks more than 1% to boot.
And with UK inflation also undercutting forecasts this week, the Bank of England’s decision later on Thursday will now be watched closely for more dovish signals from policymakers.
Only Norway’s central bank dampened the party somewhat by indicating it was in no mind to ease until the autumn.
But led by the Fed’s benign take late on Wednesday, the evolving central bank story lit a fire under stock and bond markets once more.
MSCI’s all-country stock index – up 7.5% for the year to date – raced to new record highs on Thursday after both the S&P500 and the Nasdaq set new closing records late on Wednesday.
Asian bourses surged through the night, with Japan’s Nikkei, South Korea’s Kospi and Taiwan’s benchmark all gaining more than 2%, and Europe’s leading indexes jumped more than 1% on Thursday too.
U.S. stock futures were higher again ahead of Thursday’s bell.
Bonds were buoyed too – with 2-year U.S. Treasury yields now down almost 20 basis points from Monday’s peaks to 4.57%.
Much of the rush of blood is based on relief that Fed policymakers, who set out their quarterly projections for rates and the economy again on Wednesday, had not dialed back December’s forecasts for 75bps of rate cuts this year.
The median of officials’ “dots” on expected policy rates for this year came in unchanged at 4.6% – compared to the current setting of 5.25-5.50% – and they also have their favored PCE inflation gauge back to its 2% target next year.
But in a slightly more cautious signal – perhaps reflecting greater confidence in the economy’s growth potential – the median dot for next year climbed to 3.9% from 3.6% and for the first time since before the pandemic policymakers nudged up their long-run equilibrium rate to 2.6% from 2.5%.
Speaking of stickier U.S. inflation reports this year that had unnerved markets somewhat, Fed chair Jerome Powell said they “haven’t really changed the overall story, which is that of inflation moving down gradually on a sometimes bumpy road to 2%.”
All of which has futures markets upping the chances for a first Fed cut as soon as June to some 80% and they increased the amount of easing seen for the whole year by 10bps to 85bps.
