Global Stock Markets Surge Following Federal Reserve's Historic Rate Cut
Global stock indices experienced a remarkable rally on Thursday, following the US Federal Reserve's unexpected decision to cut interest rates by 0.50 percentage points. This marks the beginning of a much-anticipated monetary easing cycle, providing a much-needed boost to investor confidence. On Wall Street, the Nasdaq soared by 2.70%, while the S&P 500 rose sharply by 1.74%, and the Dow Jones increased by 1.12%, with both the Dow and S&P 500 hitting record highs during the session.
In Europe, the Frankfurt Stock Exchange also saw significant gains, with the DAX index climbing 1.55% to reach a historic level of 19,002.38 points. The Paris Stock Exchange recorded a notable increase of 2.29%, marking its highest rise since January. Other European markets also enjoyed gains, with London up by 0.91% and Milan by 1.16%.
This surge in stock prices can be attributed to the Fed's decision to cut rates to a range of 4.75 to 5.00%, aimed at restoring purchasing power to American households amid rising inflation and high credit costs. Fed Chairman Jerome Powell reassured investors by emphasizing that the central bank would not wait too long to respond to any economic challenges, reinforcing confidence in the strength of the US economy.
Impact of the Rate Cut on the Economy and Markets
The Federal Reserve's half-point rate cut, the largest since the onset of the Covid pandemic, has led to a significant rally in tech stocks. Major players like Nvidia, Tesla, Meta Platforms, and Apple all saw their shares rise sharply, with Nvidia gaining 4% alone. This move by the Fed is seen as a strategic shift towards maximizing employment, as Powell noted that while the labor market remains solid, it is not as robust as pre-pandemic levels.
Despite the positive market response, the decision to lower rates carries potential risks, including inflationary pressures that could undermine the Fed's previous efforts to combat rising prices. Analysts suggest that the Fed's latest actions serve as an
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