Economic Update – Easing Monetary Policy

The US Federal Reserve cut rates by 50 basis points, marking the start of its easing cycle. The Fed Funds target rate now stands at 4.75%-5.0%. Globally, most major central banks have followed suit, with Australia as a notable exception. This coordinated easing is set to shift global equity markets, favoring small-cap stocks over large-cap. A strong yield differential between Australia and the US signals potential upside for the AUD$, though this will depend on commodity demand from China.

Australia is expected to begin its rate-cutting cycle in early 2025, though some economists are advocating for a December 2024 cut. The RBA remains cautious, noting uncertainties around household consumption and labor market performance, and preferring to wait for more data.

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