US Federal Reserve Rate Decision Grips Australian Investors

1

Anticipation is rife regarding potential future rate cuts. Independent economist Craig James notes that while the announcement may not yield immediate effects, any deviation from an anticipated tilt towards rate cuts could disappoint US markets, subsequently affecting Australian investors.

While Commonwealth Bank economists predict a series of quarter-point rate reductions across the next four meetings, there's a possibility of the Federal Reserve adopting a cautious stance, as tariffs impact prices amidst a slowing economy that shrank by 0.3% in the March quarter. This stagflation scenario places policymakers in a predicament: to increase rates to combat inflation or to lower them in response to economic stagnation.

The Bank of England's decision on Friday holds less sway, with Australian focus remaining firmly on the US. Domestically, the Reserve Bank's rate announcement on May 20 hints at the potential for further cuts, fueled by controlled inflation figures rising by 0.7% last quarter in a volatile setting.

Additionally, newly significant monthly household spending data, soon to replace retail trade figures as the Reserve Bank's key consumer spending indicator, is due Tuesday. Modest changes in spending rates are expected to be positively received by investors, barring substantial deviation from zero.

Political dynamics are also noteworthy, as the federal election result looms. Craig James points out that anything other than a majority government complicates market certainty, creating trepidation among investors who favour stability, especially the prospect of a hung parliament with independent negotiations.

Meanwhile, on Wall Street, optimism is boosted by robust economic data and easing US-China trade tensions. The US economy added 177,000 jobs in April, exceeding forecasts, and sustaining a 4.2% unemployment rate. Consequently, US stock indices saw gains: the Dow Jones rose 564.47 points, S&P 500 increased 82.54 points, and the Nasdaq Composite climbed 266.99 points.

These developments sparked a rise in Australian share futures, up by 32 points or 0.38% to 11,481, while the S&P/ASX200 saw a 1.13% increase, and the All Ordinaries climbed by 1.08%.

Published:Sunday, 4th May 2025
Source: Paige Estritori

Share this news item:

Finance News

Clear

RBA Rate Cut Sparks Concerns Amid Rising Housing Market Outlook 21 May 2025: Paige Estritori The Reserve Bank of Australia's recent decision to reduce the cash rate by 25 basis points to 3.85 per cent has stirred reactions among young Australians and financial experts. The decision provides relief for current homeowners but poses challenges for first-time buyers due to anticipated housing price increases. - read more

Investors Shift Focus to Hedged International Equity ETFs Amid Volatility 19 May 2025: Paige Estritori New insights from InvestSMART reveal a noticeable shift in investment preferences from Australian equity Exchange Traded Funds (ETFs) to global equity ETFs, particularly hedged international equity ETFs. This development comes in light of investors' efforts to guard against currency fluctuations. - read more

RBA Rate Cut Possible Despite Eased US-China Tariffs 19 May 2025: Paige Estritori Economists are largely forecasting that the Reserve Bank of Australia (RBA) will reduce interest rates during its upcoming meeting, although recent international developments add some uncertainty to this prediction. Notably, US President Donald Trump's decision to lower tariffs on China prompted a reciprocal tariff reduction by Beijing, leading to a rise in risk asset values, including shares. - read more

Australia Records Historic Fall in Disposable Income 16 May 2025: Paige Estritori Recent data from the Australian Bureau of Statistics (ABS) revealed a historical drop in real per capita household disposable income for Australians, marking an unprecedented fall of around 8% since mid-2022. This decline represents a significant issue, with Australia experiencing the largest decrease in the developed world, according to the OECD. - read more

Record High Australian House Prices Exceed $11 Trillion 16 May 2025: Paige Estritori Australia’s housing market has reached a significant milestone, with the total value of housing stock hitting $11.3 trillion as of April 2025. According to Cotality, formerly CoreLogic, the average home is now valued at $1 million, underscoring the considerable growth in property values. - read more

ASX Hits 11-Week High Amidst US-China Tariff Pause 14 May 2025: Paige Estritori The Australian Securities Exchange (ASX) reached its highest level in 11 weeks, buoyed by the announcement of a temporary pause in tariff increases between the United States and China. The ASX 200 index climbed 35.50 points, or 0.43%, to 8,269, with standout performances from the energy and information technology sectors. Similarly, the All Ordinaries index saw a rise of 43.70 points, or 0.52%, closing at 8,510.70. The Australian dollar also appreciated, gaining 0.71% to 64.16 US cents. - read more

AI Gaining Traction Among Australian Financial Advisers 14 May 2025: Paige Estritori A recent global survey conducted by the Financial Planning Standards Board reveals a growing trend among Australian financial advisers who see artificial intelligence (AI) as a beneficial tool. The study, which includes perspectives from advisers across 24 markets, highlights that approximately 82% of financial advice businesses in Australia are either currently utilizing, piloting, or planning to incorporate AI within the next year to enhance client services. - read more