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.


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