Australian Bond Exchange Weekly Update
20th December 2024
Key points
- Federal Reserve – A Hawkish Cut
- Bank of Japan and Bank of England hold
- MYEFO – a decade of deficits
Global Cash Rates & Inflation
- The Reserve Bank of Australia (RBA) Cash Rate now sits at 35%pa and the annual inflation rate in the year to October is 2.1%.
- The US cash rate (policy rate) is currently between 25%-4.50%pa and the annual inflation rate in the year to November is 2.7%.
- The Bank of England Bank Rate currently sits at 75%pa to fight an inflation rate of 2.6% in the year to November.
- The European Central Bank Cash Rate (deposit facility) is 0%pa, to fight an annual inflation rate of 2.2% in the year to November.
Source: FactSet
Federal Reserve – A Hawkish Cut
Despite cutting the federal funds rate by 25 basis points, markets reacted sharply as the Federal Reserve scaled back its 2025 rate cut forecast from four to two, dampening the bullish momentum that had been driving financial markets.
Major equity markets, including the S&P 500, NASDAQ 100, and ASX 200, dropped sharply following the news, while government bond yields spiked.
Source: FactSet
This unexpected revision signals a more cautious stance from policymakers, prompting investors to reassess their expectations for future monetary easing.
“We have lowered our policy rate by a full percentage point from its peak and our policy stance is now significantly less restrictive,”
Jerome Powell, Chairman, Federal Reserve
Bank of Japan and Bank of England Hold
Both the Bank of Japan (BoJ) and the Bank of England (BoE) opted to maintain their current interest rates during their final policy meetings of the year.
The BoJ’s decision underscores its ongoing commitment to ultra-loose monetary policy, reflecting concerns about achieving sustainable inflation targets despite signs of economic recovery.
Source: FactSet
Meanwhile, the BoE’s pause comes as it balances the need to curb inflationary pressures with the risk of stalling economic growth amid a challenging economic backdrop.
These decisions highlight the contrasting monetary policy landscapes across major economies as they navigate evolving economic conditions.
MYEFO – A Decade of Deficits
Federal Treasurer Jim Chalmers handed down the government’s midyear economic and fiscal outlook report this week, revealing that there will be a decade of deficits as big government spending programs are set to continue.
The figures show that government spending growth is expected to jump from 2.9% in 2023-24 to 5.7% in the current financial year.
As a result, federal spending as a share of the economy is now expected to hit 27.2% in 2025-26, although it’s important to note that Australian Government debt remains relatively low compared to some other advanced economies.
Happy Holidays from the Australian Bond Exchange Team
Season’s Greetings from the Australian Bond Exchange team. We extend our warmest wishes for a joyous holiday season and a prosperous New Year.
Thank you for your trust and support. We look forward to continuing to serve you in the year ahead.
*Data accurate as at 20.12.2024
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