FirstFT: Federal Reserve sparks market rally

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Federal Reserve officials have indicated they still expect to cut interest rates by three-quarters of a percentage point this year, sending US equity markets to record highs yesterday.

The market reaction came after the Federal Open Market Committee voted unanimously to leave rates unchanged at a 23-year high of 5.25 per cent to 5.5 per cent. The central bank also sharply raised its forecast for US economic growth this year, while saying inflation would be slightly higher than expected.

The latest statement leaves the Fed on course to begin cutting rates as early as the summer, calling time on a mission to quell inflation that jumped as the US economy emerged from the Covid-19 pandemic.

It also means borrowing costs and mortgage rates that soared in recent months could begin falling just ahead of the presidential election in November.

“The economy is performing well,” said Fed chair Jay Powell in the news conference after the FOMC announcement. US gross domestic product would expand by 2.1 per cent this year, officials predicted, compared with their previous forecast of 1.4 per cent.

But with projections for core inflation of 2.6 per cent this year, slightly higher than expected, Powell signalled the path to a soft landing may yet be complicated. Read the full story.

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Here’s what else I’m keeping tabs on today:

• Interest rates: The central banks of Norway, Switzerland, Turkey and the UK announce monetary policy decisions.

• Economic data: S&P Global releases manufacturing and services purchasing managers’ indices for the EU, France, Germany, Italy and the UK. The European Central Bank publishes its economic bulletin and January balance of payments figures, while the UK has public sector finance data.

• Nuclear summit: The UN’s International Atomic Energy Agency hosts its first summit in Brussels, with speakers from the atomic agencies of South Korea, Japan, the US, China and France, plus executives from nuclear energy groups.

• Earnings: BMW, Centamin, Direct Line, Enel, M&G and Next have results.

Five more top stories

1. Emmanuel Macron will urge EU leaders to boost defence spending at a summit in Brussels today, refreshing demands for joint bonds that are opposed by Germany. Diplomats say the French president’s push could dominate the meeting, where leaders are set to discuss how to manage a resurgent Russia, and could highlight differences in how to finance the biggest rearmament of Europe since the end of the cold war.

2. Rishi Sunak has urged Conservative MPs to unite or face electoral doom in an end-of-term speech in which he argued that an improving economy would come to the party’s rescue. The UK prime minister pointed to inflation falling to 3.4 per cent as evidence of a “new economic moment” for the country and promised to carry on cutting national insurance in the next parliament. Read more from his address to MPs.

3. Reddit has priced its shares at $34 ahead of its expected debut in New York today. The figure is at the top of previous guidance and gives the social media company a fully diluted valuation of $6.4bn, well below the $10bn it received at its last private fundraising in 2021. Reddit’s initial public offering, the first high-profile IPO in an otherwise quiet market over the past two years, is viewed as a test of appetite for potential listings this year.

4. The entrepreneurs behind UK start-up Builder.ai have been named by authorities in India in relation to high-profile criminal probes in the country. Sachin Dev Duggal has been described as a suspect in a money laundering investigation, while Saurabh Dhoot is accused in the charge sheet of a loan fraud case, according to court documents. London-based Builder.ai has been backed by some of the world’s biggest tech investors, including Microsoft. Read more about the investigations.

5. Two parliamentary select committee leaders have raised concerns about TikTok’s ownership in the UK, a week after the US House of Representatives approved a bill that would ban the video app unless it is sold by its Chinese parent company. Liam Byrne, chair of the House of Commons business and trade committee, told the Financial Times that while scrutiny of TikTok had focused on the safety of user data, it was the platform’s effect on democratic elections that concerned him.

Deep dive

One hundred years ago today, Edward Leffler, a former door-to-door salesman of pots and pans, invented the open-ended mutual fund, giving working and middle-class people an ownership stake in US capitalism. Today, newer and more nimble products that promise tax advantages, lower fees and rapid trading are reshaping asset management. Could this be the end for the mutual fund?

We’re also reading . . . 

Chart of the day

China steel exports are running at an eight-year high as a property crisis undermines domestic consumption and fuels concerns of global oversupply. In the first two months of this year, Chinese exports increased 32.6 per cent against a year earlier to 15.9mn tonnes, according to figures from China’s National Bureau of Statistics.

Take a break from the news

For the gentleman wishing to channel his inner flâneur this spring, HTSI offers 24 ways to live like a Frenchman, from the classic Polo Ralph Lauren twill pea coat to an elegant Cartier vintage gold watch and a Lobmeyr handblown crystal wine glass.

Additional contributions from Benjamin Wilhelm