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Milder inflation is raising hopes that central banks around the world can pivot in 2024 from their campaigns to hike interest rates sharply in order to snuff out further big increases in prices. For the Federal Reserve in particular, the expectation is for its main interest rate to fall by at least 1.50 percentage points in 2024 from its current range of 5.25 per cent to 5.50 per cent, which is its highest level in more than two decades.
Treasury yields have been tumbling since late October on such hopes, and they fell again following the UK inflation report.
The yield on the 10-year Treasury slipped to 3.91 per cent from 3.93 per cent late Tuesday. It had been above 5 per cent in October, at its highest level since 2007 and putting harsh downward pressure on the stock market.
Lower interest rates and yields not only help the economy grow by making borrowing less expensive, they also boost prices for investments and relax the pressure on the overall financial system.
With yields down, US stocks are still on track for another winning week. Big internet-related companies were among the market’s leaders Wednesday, including a 3.1 per cent rise for Alphabet and 0.7 per cent gain for Amazon.
Stocks of oil and gas companies were also strong as the price of crude clawed back some more of its sharp losses from recent months.
Overall, the S&P 500 just came off its seventh straight week of gains, its longest such streak in six years. But that strength and length has also raised criticism that stocks have simply rallied too much.
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It’s still not certain the Fed can pull off what was seen as a nearly impossible tightrope walk not long ago. And critics say the number of cuts to rates that Wall Street is forecasting for 2024 seems unlikely unless the economy falls into a recession, which would hurt corporate profits and thus stock prices.
Some officials from the Federal Reserve have also made comments recently saying it’s too early to consider a cut to rates in March, which is when the majority of traders expect them to begin, according to data from CME Group.
In stock markets abroad, the FTSE 100 in London rose 0.9 per cent following the encouraging UK inflation report. Indexes also rose across much of Asia, but stocks fell 1 per cent in Shanghai after China kept its benchmark lending rates unchanged at the monthly fixing on Wednesday.
AP
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