Powell signals Fed nearing interest rate cut

Global markets rallied as the heads of both U.S. and European currency policies indicated that interest rate cuts are imminent this year. Anticipation of these cuts possibly occurring before the summer of 2024 propelled major Western benchmark indexes, such as the S&P500, to new highs while lifting similar Korean and other Asian indexes.

During the Senate Banking Committee on Thursday, Fed Chair Jerome Powell mentioned that the central bank is “not far from” being able to cut interest rates. While Powell reiterated the logic behind cutting interest rates if progress toward the 2% inflation objective is assured, he hinted at the possibility of imminent rate cuts when senators questioned the timing of such actions.

On the same day, European Central Bank President Christine Lagarde hinted at possible interest rate cuts in June for the first time. During a press conference following a regular currency committee meeting, where the benchmark rate was kept unchanged, Lagarde stated that the exact timing of the rate cut had not yet been discussed due to the need for more data on inflation trends. However, she pointed to June as a pivotal time when they expect far more clarity.

Both Powell and Lagarde indicated that 2024 would be an appropriate time to cut interest rates, yet the market interpreted their comments as suggesting earlier cuts. Following their remarks, global stock exchanges, foreign exchange, and commodities markets experienced significant surges. The U.S. S&P500 index achieved its 16th record high of the year, while the STOXX 600, a pan-European benchmark index, surpassed 500 for the first time, reaching a new record high.


Hyoun-Soo Kim kimhs@donga.com