Weekly Market Update – Week Ending 02/02/24

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While earnings season continued at pace this week, investors’ attention was also drawn to monetary policy announcements.

The Federal Reserve (Fed) announced on Wednesday that interest rates will remain at the 23-year high of between 5.25%-5.5% for the third consecutive month. While the decision was widely forecast, Fed chair, Jerome Powell, pushed back on hopes that any prospective cuts were imminent, casting doubt on the hopeful market expectations that cuts could start as early as March.

Closer to home, the Bank of England (BoE) decided to hold rates at 5.25% on Thursday. There was, however, a change in the voting from the previous meeting, with one member (for the first time since 2020) proposing to cut interest rates. The vote was split, with 2 members wanting to increase rates, while six members voted to keep rates unchanged. Andrew Bailey, governor of the BoE, said the committee “need to see more evidence that inflation is set to fall all the way to the 2% target, and stay there, before we can lower interest rates.”

Many economists criticized central banks for acting too slowly when prices started to pick up in the second quarter of 2021, as they continued to push the ‘transitory’ nature of inflationary pressures. It now appears that with inflation trending back towards their 2% target levels, central banks are keen to avoid a situation where they cut interest rates too early, only to reverse course if inflation picks back up again.

John Naylor, Chartered FCSI – Head of Investment Committee
John Naylor