In a major U-turn this morning the US Federal Reserve has told the world that it will be "patient" in determining the need for more interest rate hikes.

That one magic word has dramatically shifted the outlook for global markets - which soared on the news.

Just three months ago the Fed was expected to hike US interest rates four times in 2019 - now it is implying that it may not hike at all.

This was exactly the news that Wall Street was looking for. The Dow Jones indexes closed up almost 2 per cent.

Advertisement

The US dollar also dropped sharply. The Kiwi shot up more than half a cent against the Greenback.

The local NZX-50 - which had dipped almost 2 per cent this week - ended up by 0.67 per cenyt up at 8985.

In Asia Japan's Nikkei 225 index surged 1.3 per cent and the Hang Seng in Hong Kong gained 1.3 per cent.

Why are investors so excited?

Well this means the cost of borrowing in US dollars is going to remain cheaper for longer - turbocharging the economy and keeping the sharemarkets in the game as attractive investment options relative to putting money in the bank.

The Fed also said it was "prepared to adjust any of the details for completing balance sheet normalisation in light of economic and financial developments".

In other words, it plans to move more slowly to unwind the quantitative easing process - sometimes called money printing - that began after the global financial crisis.

The age of easy money is not over yet.

Advertisement

This exactly what US President Donald Trump has been publically and controversially calling on the Federal Reserve to do.

US Federal Reserve chairman Jerome Powell had to specifically rule out any political interference.

Nevertheless it appears the Fed has buckled to mounting pressure from Wall Street and suggestions that the US economy is at risk of recession.

"It's hard to read this anything other than the Fed has capitulated to the market," Michael Gapen, chief US economist at Barclays, told Bloomberg News.

"The market will read this as they're done with the hiking cycle and that a halting in the balance sheet runoff is more likely than another rate hike."

So if the market is happy what is the problem?

Well, if like Donald Trump, record global debt levels of US$184 trillion don't bother you then maybe nothing much.

But others - with longer-term outlooks - will argue that this decision to pause rates hikes now flies in the face of the lessons we were supposed to have learned from the Global Financial Crisis.

The bigger the debt mountain the bigger the mess if and when we face a serious financial crisis.

The global bull run is long in the tooth by historic standards.

In pumping the economy now with its dovish stance the Fed is limiting its future firepower if shares plunge again.

It has effectively kicked the can down the road.