FTSE 100 Live 19 December: Index slumps on US rates outlook, water stocks higher [Video]

The softening of the Federal Reserve’s stance on rate cuts comes amid expectations that inflation will be 2.5% by the end of next year, up from the central bank’s September estimate of 2.1%.

Last night’s quarter point cut by the Federal Reserve has also taken policy closer to the neutral rate, at which it neither boosts nor slows the economy.

UBS Global Wealth Management said the closer the Fed is to neutral the harder it becomes to justify further cuts.

It expects near-term volatility as markets recalibrate the Fed’s standpoint but still sees the S&P 500 at 6600 by the end of next year.

The bank said: “A mixture of resilient US activity, lower borrowing costs, a broadening of US earnings growth, further AI monetisation, and the potential for greater capital market activity under a second Trump administration create a favourable backdrop for US equities, in our view.”