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After today’s announcement by the Bank of England to hold key rates steady, both the BoE and the Federal Reserve have decided to maintain their current rates, with the BoE holding steady at 5.25% and the Fed keeping its benchmark rate in the range of 5.25% to 5.5%.

This decision comes as both central banks observe encouraging signs of inflation easing, although they remain cautious about prematurely lowering borrowing costs.

Governor Andrew Bailey of the BoE noted that while inflation is moving in the right direction, it is not yet time for rate cuts. Similarly, Fed Chair Jerome Powell emphasized the challenge of persistent inflation but expressed confidence in eventually achieving the Fed’s 2% inflation goal.
 

The Federal Reserve and BoE Hold Rates Steady

The decisions made by the BoE and the Fed were influenced by recent inflation data, with the BoE responding to a sharp drop in inflation to 3.4%, the lowest rate since 2021, and the Fed observing a slight increase in February inflation to 3.2% on an annual basis.

Despite maintaining current interest rates, both central banks forecast potential rate cuts within the year, contingent on continued progress toward their inflation targets.
 

Market Reacts Positively in Response to Rate Decision

The markets reacted positively to the announcements, with the FTSE 100 index rising by 1.5% and the S&P 500 and Dow Jones Industrial Average also gaining following the Fed’s announcement.

The BoE’s decision led to a fall in the sterling against the dollar, and traders fully priced in three 0.25 percentage point cuts for the year, with a 75% likelihood that rate cuts could begin by June. Most Federal Open Market Committee members also projected three rate cuts later in 2024.

While high borrowing costs remain due to previous rate hikes aimed at curbing inflation, the prospect of future rate cuts has instilled optimism in the markets.

The BoE and the Fed continue to monitor inflation data and economic indicators, and their cautious approach to lowering borrowing costs reflects a commitment to ensuring sustainable economic growth and price stability in the long run. However, their approach also hints at inflation gradually slowing down.

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