Stocks, dollar calm ahead of expected US rate cut

TDT | London

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Stock markets and the dollar steadied as investors expected the US Federal Reserve to cut interest rates Wednesday to shore up the world’s biggest economy.

Traders took a breather from the global rally that lifted several equity indexes to record highs over recent weeks, as they anticipate the Fed decision and post-meeting comments by bank boss Jerome Powell.

The Dow rose at the opening bell on Wall Street, but the S&P 500 and Nasdaq Composite were flat. In Europe, London and Frankfurt stocks rose in afternoon trading, while Paris dipped.

“The Fed meeting... is one of the most hotly anticipated for the year so far,” said Kathleen Brooks, research director at XTB trading group.

While a 25-basis-point reduction -- the first of 2025 -- has been baked into valuations for some time, the main debate has revolved around how many more are in the pipeline and how big they will be.

Expectations for an extended period of easing have grown out of a string of data showing the US labour market is not as healthy as first thought.

That comes even as inflation remains stubbornly above the Fed’s two-percent target, though the feared spike in prices caused by Trump’s tariff war has not fully materialised.

Economists expect to see divisions among decision-makers as they try to walk the line between tempering inflation and supporting jobs.

Investors will be looking to the Fed’s updated Summary of Economic Projections (SEP), released after the meeting, to get an idea whether the Fed’s monetary policy committee’s voting members see a similar pace of interest rate cuts.

The Fed Funds futures market sees two more rate cuts this year and three in 2026.

In Britain, data showing UK inflation held at 3.8% in August reinforced expectations that the Bank of England will maintain its key rate on Thursday and for the remainder of 2025.

The Bank of Canada cut its key lending rate as expected on Wednesday.

Asian stocks traded mixed, after Tuesday’s tepid showing on Wall Street.

Gold prices retreated from their record above $3,700 an ounce reached Tuesday, as the likelihood of lower US interest rates makes the precious metal more attractive to investors.