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Equity markets across the world have surged after the US Federal Reserve meeting outcome on Wednesday and the dollar index has taken a beating. The US Fed on Wednesday kept the interest rates unchanged at 5.25-5.5 per cent. The central bank also made no change in its rate cut forecast for 2024. The median Federal fund rate forecast for 2024 was left unchanged at 4.6 per cent. That leaves the door open for three rate cuts this year.
The Fed Chairman Jerome Powell, in his speech, said that the interest rates are at the peak of their cycle. He also added that if the economic outlook goes as projected, then the interest rates could be cut later this year.
Inflation: Not a worry
Powell acknowledged the recent rise in inflation but said that it has not dented the confidence that the inflation path is heading down towards 2 per cent. The US Headline Consumer Price Index (CPI) inflation data has been showing an uptick (month-on-month basis) over the last couple of months. The Fed Chairman indicated that there are chances for the inflation to remain high in the first half and then soften in the second half of the year. However, Powell said that the incoming data on inflation and its context will be important to watch to increase their confidence.
The Fed has revised its forecast for the Core Personal Consumption Expenditure (PCE) higher to 2.6 per cent in 2024 from its earlier projection of 2.4 per cent. PCE is the inflation gauge of the Fed.
No recession
On the economic growth front, the Fed expects the US to expand at a much better pace than earlier. The central bank projects the US to grow at 2.1 per cent in 2024. This is much higher than the growth forecast of 1.4 per cent made in December. The economic growth is projected to be at 2 per cent for both 2025 and 2026. The growth projection indicates that the Fed is not anticipating the US to run into a recession.
Equities outlook
No change in the rate cut forecast, better growth outlook has triggered a strong rise in the global equities. The Dow Jones (39,512) has surged well above the key resistance level of 39,200. The outlook is bullish. The index can test 39,700-39,800 in the near-term. A break above 39,800 can take the Dow Jones up to 40,400 in the coming weeks.
Nifty 50: Be cautious
On the domestic front, Nifty50 has come down from an intraday high of 22,081. It is important for the Nifty to get a sustained break above 22,000 and then a subsequent rise past 22,250. Failure to rise above 22,250 in the next few days can keep the index under pressure for a fall to 21,500. So, a cautious approach is needed going forward on the Nifty
Gold glitters
Gold surged to a record high of $2,222 per ounce on the COMEX. It is currently trading at $2,208 per ounce. The broader picture is looking bullish with strong support at $2,100. Gold can surge to $2,300 and higher in the coming weeks.
Weak dollar
The dollar index (103.20) has come down sharply from around 104.15. It can break 103 and test the next support level of 102.50 in the near-term. A further break below 102.50 can drag the index down to 101 in the coming weeks.
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