US and UK Interest Rates Held Yet Again

US Federal Reserve

Yesterday, the Federal Reserve held US interest rates at a range of 5.25% pa to 5.5% pa which is still at or around its average rate since 1971.  The current rate has been held for the 5^th consecutive time.

Fed Chair, Jerome Powell remains ‘dovish” i.e., concentrating on getting lower unemployment, getting the economy growing steadily but keeping inflation under control and then having room to move lowering rates.  Powell made several points in his remarks yesterday that: risks are more balanced with inflation fears not a strong as they used to be but reaffirming that they must get inflation down “over time” with no rush to bring inflation down at a faster rate.  Powell also indicated that recent min-spikes in inflation do not change the overall picture as well as not being driven by high job numbers and that the Fed would shortly start to loosen its Quantitative Tightening (QT) programme i.e., buying back government debt to reduce money in the economy.  This gives us a stable review of the Fed being in control, with stable inflation which, as you may know devalues overtime government debt e.g. from covid-19/pandemic spending and arms spending.

Keeping US rates at the same level, hit the $ but gold and equity stock markets in the Dow Jones and the S&P 500 hitting record highs both yesterday at close and again today on opening.

Bank of England

Today, the Monetary Policy Committee (MPC) of the Bank of England, voted with a majority of 8:1, to also hold UK base rates at 5.25%, again for the 5^th month in a row.  With only 1 voting to cut rates, this is a fall from two months ago where 3 MPC members voted to cut rates.  We expected the Bank of England to hold rates, not just following the US but whilst UK inflation fell in February (announced yesterday) to 3.4% pa, there is still upward pressure on inflation as housing costs continue to climb in addition to telecoms and streaming costs due to rise in April.  A bonus is that currency fluctuation between the $ and £ will remain stable, keeping our trade with the US stable.  FTSE 100 is up 3% already this week and just 0.4% of its all time high (at the time of writing this article) and the FTSE 250 was just 0.01% of its year high.

Comment

None of the above was a surprise to us or most market commentators.  We still see market volatility but that merely presents opportunities to buy in when markets fall back.  As you know, short term we are holding in UK and US (Amber/Neutral) but medium term, when interest rates do fall, we expect more market highs provided sustained higher interest rates have not pulled us into recession.

We believe central banks are now starting to control inflation and given the drag effect of Brexit keeping UK markets behind the US and EU stock market gains, we do believe that the UK will be in a much stronger place, later this year.