Investment Institute
Weekly Market Update

Take Two: Fed keeps interest rates on hold; Bank of Japan ends negative rates

  • 25 March 2024 (3 min read)

What do you need to know?

The US Federal Reserve (Fed) kept interest rates on hold between 5.25% and 5.50% at its March meeting and as expected, it was a unanimous decision. Policymakers also indicated that they still expect three interest rate cuts this year, but reduced their expectations for 2025 to 75 basis points (bp) of cuts from 100bp. Fed Chair Jerome Powell reiterated that although inflation had fallen “substantially”, it remains above the 2% target. He also said the Fed would decide on slowing quantitative tightening “fairly soon”. The decision by the Fed helped buoy global markets with several including the S&P 500, Nasdaq and European Stoxx 600 closing at record highs. 


Around the world

The Bank of Japan (BoJ) raised its key interest rate for the first time in 17 years, to between 0% and 0.1% from -0.1%, ending eight years of negative rates as BoJ Governor Kazuo Ueda signalled the end of an “extraordinary monetary easing scheme”. The central bank also abolished its yield curve control policy, in future opting to buy more “nimbly” if there is a sharp rise in long-term rates. Japan inflation accelerated in February, with the core index rising 2.8% from a year earlier after a 2.0% gain in January. Elsewhere the Bank of England kept interest rates on hold at 5.25%, while Switzerland became the first developed market to cut rates, with a surprise 25bp reduction to 1.5%.

Figure in focus: 49.9

Eurozone business activity came close to stabilising in March thanks to a modest service sector recovery, data provider S&P said. The bloc’s flash composite Purchasing Managers’ Index (PMI) rose to a nine-month high of 49.9, up from 49.2 in February – a reading below 50 signifies contraction. In addition, Eurozone annual inflation was confirmed at 2.6% in February from 2.8% in January. Core inflation, which excludes food, energy, alcohol and tobacco prices, eased to 3.1% from 3.3%. Elsewhere, UK annual inflation fell further than expected to 3.4% in February from 4.0% in January, its lowest level since September 2021, partly due to a slower pace of food price rises.


Words of wisdom

Red alert: The United Nations weather agency sounded a “red alert to the world”, warning that the 1.5°C Paris Agreement global warming limit had never been so close. The World Meteorological Organization confirmed that 2023 was the warmest year on record, with the global average temperature at 1.45°C above pre-industrial levels. Greenhouse gas levels, ocean heat and sea level rise also set new records last year. However, it said there was a “glimmer of hope”, as renewable energy capacity additions increased by almost 50% from 2022.

What’s coming up?

On Monday, the BoJ publishes the minutes from its latest monetary policy meeting. On Wednesday, a spate of Eurozone surveys, including the latest Economic and Industrial Sentiment and Consumer Confidence indices will be issued. On Thursday, the US and UK each report final fourth quarter GDP growth figures, while the BoJ publishes its Summary of Opinions, including its projections for inflation and economic growth. China will publish its latest PMIs on Sunday.

    Disclaimer

    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    Are you a Professional Investor ?

    This website is available in English only and directed at professional, institutional or qualified investors. It is not suitable for retail investors. As such, some of the funds, products and services described on this website are not available for retail investors under the MiFID II (Directive 2014/65/UE). By pressing accept you confirm that you are a professional investor and agree to AXA Investment Managers' Legal Information and Terms of Use.