Slow and Steady Wins the Race: The US Fed’s Impact on Australia’s Share Markets

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Australian shares rallied on Thursday following the latest policy meeting from the US Federal Reserve, which showed that policymakers agreed to slow down the pace of interest rate hikes.

The S&P/ASX 200 index rose 0.6% to 7098.7 by 2315 GMT, sending the benchmark up 1.6% after it closed on Wednesday. The surge came as investors welcomed the news from the US Federal Reserve meeting minutes, which showed that policymakers had agreed to slow down their rate-hike pace.

This is a welcome relief for markets in Australia, which were previously worried about the potential impacts of rising US interest rates on global growth and risk appetite. In particular, a slower rate-hike pace may help ease fears of an emerging market crisis and boost commodity prices.

The minutes from the Federal Reserve’s December policy meeting showed that all officials favoured slowing down the hawkish rate hikes to battle against soaring inflation and limited economic growth risks. This is a welcomed move for investors seeking market stability and avoiding volatility.

The US Federal Reserve has been steadily raising interest rates over the past two years to keep inflation within target levels and combat a potentially overheating economy. However, this strategy may have inadvertently caused economic uncertainty and increased market volatility.

Traders now see a 68.8% chance of a 25 basis point rate hike from the Fed in February, despite the Federal Reserve’s decision to slow down its rate-hike pace. This indicates that investors remain cautious but optimistic as they anticipate further monetary easing.

According to Jaskiran Singh, “Reacting to the Fed minutes, bullion prices held near seven-month highs overnight, boosting Aussie gold stocks up more than 2.5% and becoming the top gainers on the benchmark.”

Most traders expect rates to peak below 5% by June, slightly lower than the 6% peak before the December policy meeting. This shows that while the central bank has managed to ensure economic stability and limit market volatility, investors expect an eventual rise in interest rates.

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