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The stock market reacts almost immediately to divergent announcements from major central banks. While the Fed remains cautious about its rates, the Bank of England begins an easing. These decisions strongly influence European stock indices.
In brief
- The Fed keeps its rates, reassuring markets that expect easing by September.
- The Bank of England lowers rates, stimulating the stock market despite a fragile UK economic context.
Here is how the stock market reacts to the Fed’s decision
During its last meeting, the Fed decided to maintain its key interest rates. They therefore remain in the range of 4.25% to 4.50%.
This decision was expected. Nevertheless, analysts pay particular attention to Jerome Powell’s remarks. The Fed chairman indeed recognizes two fundamental facts:
- Increased risks now weigh on employment and inflation.
- Growth is slowing.
Despite no announcement of an imminent rate cut, stock markets responded positively. Investors still anticipate monetary easing by September.
- The CAC 40 jumped 0.8%.
- The German DAX rose 1.1%.
- The UK FTSE 100 posted a 0.3% gain.
This performance is explained by the conviction that the Fed remains attentive to economic signals without risking an excessive tightening of its policy.
The BoE lowers rates in the face of economic challenges
On its side, the Bank of England surprises many by cutting its key interest rate by 25 basis points. It now stands at 4.25%.
For stock market investors, this decision marks a turning point after several months of stability. It indeed comes amid a slowdown in the UK economy. The latter is notably suffering the consequences of trade tensions with the United States, following the recent imposition of tariffs.
The BoE anticipates economic growth of only 0.75% in 2025. Its monetary policy committee now foresees progressive reductions of the key interest rate. It could therefore reach 2.75% by early 2026. Inflation is expected at 2.6%, close to the target.
UK financial markets welcome this announcement, with a slight rebound in the FTSE 100. This indeed reflects a renewed confidence of investors in the stock market.
The divergent decisions of the Fed and the Bank of England reflect the specific economic challenges in each region. Financial markets remain attentive to central banks’ policies, which undeniably influence the stock market.
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My name is Ariela, and I am 31 years old. I have been working in the field of web writing for 7 years now. I only discovered trading and cryptocurrency a few years ago, but it is a universe that greatly interests me. The topics covered on the platform allow me to learn more. A singer in my spare time, I also cultivate a great passion for music and reading (and animals!)
DISCLAIMER
The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.
