Global investors brace for turmoil as big Fed cut sows confusion

Global stocks (.MIWD00000PUS), opens new tab hit records on Thursday, a day after the Federal Reserve lowered borrowing costs by 50 basis points from a 23-year high while the euro, sterling and currencies from Norway to Australia firmed against the dollar. U.S. stocks surged after an initial muted reaction to the Fed cut.

But in one sign the Fed’s cut is making policymakers outside the U.S. edgy, the Bank of England held interest rates steady on Thursday, citing uncertainty about inflation and global demand.

Traders dialed back their UK rate cut forecasts and some money managers warned the Fed might be adding too much support to an already robust U.S. economy, lifting global growth but potentially also prices of commodities and consumer goods.

“I think it’s more likely the Fed cuts too much and the economy accelerates,” Royal London head of multi-asset Trevor Greetham said.

“It might be that there are then not loads of (global) rate cuts,” he said, adding he expected higher market volatility from here.

“I see more turbulence, there are just too many risks,” Legal & General Investment Management head of economics Tim Drayson said, citing prospects that the U.S. was slowing.

LGIM, Britain’s biggest asset manager, was not taking strong positions on global stocks and bonds for now, he said.

Traders see the Fed’s funds rate dropping 72 bps this year and by 195 bps by October 2025.

They have reduced near-unanimous bets for a quarter-point UK rate cut in November to around 80% and see the European Central Bank as unlikely to cut rates next month, but investors viewed such predictions as unstable.

These European rate-setters are grappling with slower growth than the U.S, but stickier inflation. Their policy paths and markets depend on a scattergram of unpredictable scenarios for the U.S. economy…