Global Markets Surge on Rate Cut Prospects as FTSE 100 Reaches Record Highs

Global equities rallied on Wednesday as mounting optimism for interest rate reductions by the US Federal Reserve sent markets to fresh all-time highs. The FTSE 100, London’s blue-chip index, climbed 17.42 points or 0.2 per cent to close at 9,165.23, setting a new record and taking gains for the year to an impressive 12.1 per cent.

The worldwide surge was echoed by the MSCI All Country World Index, which surpassed 954 points for the first time, showcasing robust recovery in share prices since President Trump’s headline tariff announcements in early April. Major continental exchanges joined the upswing, with the Stoxx Europe 600 index up 0.6 per cent, while Germany’s Dax and the French CAC40 each rose 0.7 per cent.

Inflation data from the United States proved pivotal. July’s inflation rate held steady at 2.7 per cent, bolstering market sentiment that the Fed will act to reduce the federal funds rate for the first time since December. Weakened labour market figures reinforced this expectation, with betting on a rate cut to the new range of 4.0 to 4.25 per cent in September virtually certain. US indices followed suit: the S&P 500 ended 0.3 per cent higher at 6,466.58—its seventeenth record close this year—while the Nasdaq rose 0.1 per cent to 21,713.14, marking its twentieth record high of 2025.

Analysis from US investment bank Jefferies indicates anticipation for another two rate reductions this year, commencing with the expected move in September. The bank highlighted the twin drivers of steady inflation and a softer jobs market as decisive factors.

On the policy front, the Trump administration has continued near-daily pressure on the Fed and its chairman Jerome Powell, demanding a sharp reduction in rates. US Treasury secretary Scott Bessent openly declared that current rates should be 1.5 to 1.75 percentage points lower, echoing President Trump’s view that rates should fall to 1 per cent. With Powell’s term expiring in May 2026, the White House has considerably broadened its search for his successor, now considering a list of eleven names including both of the Fed’s vice chairs, Philip Jefferson and Michelle Bowman, current Fed governor Christopher Waller, Dallas Fed president Lorie Logan and senior economic adviser Kevin Hassett.

Economic consultancy TS Lombard issued a note of caution amid the exuberance, suggesting that ever higher valuations and already ambitious forward earnings expectations could eventually temper the Wall Street rally. Nevertheless, for now, the momentum from steady inflation and political pressure on policy continues to propel markets and dominate the global investment narrative.