European Stocks Rise Following Fed’s Aggressive Rate Cut, Focus Shifts to BoE Decision

European stock markets saw strong gains on Thursday, buoyed by the Federal Reserve’s aggressive rate cut and investor anticipation ahead of the Bank of England’s (BoE) policy decision.

• Germany’s DAX was up 0.9%,
• France’s CAC 40 rose 1.4%, and
• The UK’s FTSE 100 climbed 0.9% as of 03:05 ET (07:05 GMT).

Fed’s Aggressive Start to Easing Campaign

The Federal Reserve cut interest rates by 50 basis points on Wednesday, lowering its benchmark rate to a range of 4.75% to 5%. This move marked the first rate cut since March 2020 as the Fed began an aggressive easing cycle aimed at stabilizing the U.S. economy after a prolonged struggle with inflation. The Fed also signaled two more 25 bps cuts in 2024, increasing the number of projected cuts from one in its June outlook.

While concerns about the strength of the U.S. economy were raised due to the aggressive rate reduction, Fed Chair Jerome Powell reassured markets by stating that the risks of higher inflation and a weakening labor market are now balanced.

BoE Decision Expected to Hold Steady

Attention is now focused on the Bank of England (BoE), which is expected to keep its benchmark interest rate unchanged at 5.0% during its policy-setting meeting later today. The BoE previously cut rates in August, and policymakers are likely to maintain a cautious stance to avoid easing too quickly.

Despite the UK’s annual consumer price inflation being in line with the BoE’s medium-term target at 2.2% in August, services inflation remains high at 5.6%, a potential concern for policymakers as they navigate a fragile economic recovery.

This mix of inflation dynamics suggests that the BoE will likely tread carefully, balancing the need to control inflation with the need to support growth.