**ASX Set for Lower Open as Analyst Points to Central Bank Missteps**
*Based on an article by Sarah Turner, The Australian Financial Review*
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Australia’s share market is poised to start the week in negative territory, reflecting mounting investor unease surrounding global interest rate policy, particularly from the United States Federal Reserve. Market strategist David Bessent has raised concerns that the Fed may have erred in its recent decisions, contributing to heightened volatility across equity and currency markets.
### US Federal Reserve in the Spotlight
– The US Federal Reserve has been navigating a precarious path as it seeks to tame inflation while preserving economic growth.
– The central bank, under Chair Jerome Powell, has raised its benchmark federal funds rate multiple times since 2022, at its fastest pace in decades.
– Its latest decision saw the Fed maintain rates in a range of 5.25% to 5.5%.
– Market expectations are split over when the Fed may begin cutting rates, with many analysts now anticipating fewer cuts in 2024 compared with earlier forecasts.
– According to Bessent, the Fed’s policy approach demonstrates a reluctance to pivot despite evidence of cooling inflation, and this may result in unnecessary economic slowdown.
### ASX Faces Global Headwinds
– The Australian Securities Exchange (ASX) is heavily influenced by US market trends.
– Futures contracts pointed to a softer open for the ASX200, after Wall Street ended the prior week with mixed results.
– The S&P 500 and Nasdaq closed last week modestly lower, with tech stocks under particular pressure due to uncertainty surrounding interest rates and economic growth.
– Local investors remain cautious, watching for signals from both the Fed and the Reserve Bank of Australia regarding the trajectory of rates and inflation.
### Currencies: Australian Dollar Under Pressure
– The Australian dollar mirrored global volatility, dipping below US66 cents during overnight trading.
– Weakness in the domestic currency has been linked to:
– Soft commodities prices
– Concerns about China’s economic outlook
– Rising geopolitical tensions in the Indo-Pacific
– The widening divergence between the Fed’s hawkish stance and the more measured approach from the Reserve Bank of Australia.
– Many currency strategists warn that if the US dollar stays strong, further downward pressure on the Australian dollar is likely.
### Analyst Insights: David Bessent’s Assessment
David Bessent, founder of Bessent Capital, shared with the *Australian Financial Review* that the Fed has underestimated the risks of overtightening. His key points include:
– Central banks globally, including the Fed, face a credibility challenge due to rapid shifts in policy messaging.
– By maintaining relatively tight financial conditions, the Fed risks pushing the US economy into an avoidable downturn.
– Bessent notes that segments of the market, such as housing, have already shown signs of stress as higher rates filter through.
– In his view, the persistence of restrictive policy may see increasing volatility
Read more on AUD/USD trading.