The US Federal Reserve (Fed) decided for the third consecutive time this morning to keep interest rates unchanged, maintaining the federal funds rate target range at 5.25% to 5.5%. And sending a further dovish signal, the interest rate dot plot shows that for the first time since March 2021, Fed officials predict that there will be no further interest rate increases.
There will be at least three interest rate cuts next year, and the market is betting on six rate cuts.
Looking at the Fedwatch dot plot, we can see that most Fed officials expect to cut interest rates at least three times in 2024, each time by 1 yard (0.25%). The median estimate of interest rates at the end of 2024 is 4.6% (in September 5.1%).
However, there are still huge differences in expectations among officials, with eight predicting a rate cut of less than 3 yards next year and five predicting a rate cut of more than 3 yards.
Going a little longer, Fed officials also expect to cut interest rates four more times (1 percentage point) in 2025, with a median estimate of 3.6%, and three more rate cuts in 2026, with a median estimate of 3.6%. is 2.9%, and long-term interest rates are expected to remain unchanged at 2.5%.
It is worth noting that after this meeting, the market once again increased expectations for an interest rate cut. Interest rate futures linked to the Fed's interest rate date show that the market expects the Fed to cut interest rates 6 times, or 150 basis points, before the end of 2024. to 3.75% to 4% probability, and the current probability is 36.7%.
Powell says this rate hike cycle may be complete
The Federal Reserve stated in a statement after the meeting that economic activity has slowed since the third quarter and employment growth has slowed since earlier this year. As inflation cools, officials are more confident that interest rate hikes will no longer be needed to ease consumer price pressures, with inflation expected to slow to 2.8% by the end of this year and 2.4% by the end of 2024.
Federal Reserve Chairman Jerome Powell said at the press conference after the meeting that the Federal Reserve may have completed or is close to completing this round of interest rate hikes, but he pointed out that given the many unexpected situations in the U.S. economy since the outbreak of the new coronavirus, the Federal Reserve Council officials remain wary of inflation.
Bauer mentioned that the Fed will not relax and will further tighten policy at the appropriate time if necessary:
We are committed to a sufficiently constrained monetary policy stance to achieve a sustainable reduction in inflation to 2% over time.
U.S. Treasury Secretary Yellen said in an interview with Nick Timiraos, a Wall Street Journal reporter known as the "Fed's mouthpiece" earlier this week:
Inflation has indeed cooled significantly and is expected to slow down to the Fed's preset target.
…I personally don’t think the last mile of the fight against inflation will be difficult.
Optimistic that the U.S. economy will not decline
In addition, the FOMC meeting minutes are also optimistic that the U.S. economy will achieve a soft landing and will not fall into recession, predicting that the unemployment rate will only increase slightly in the next few years.
Ball said the labor market has become more balanced, and given current progress, it is now important for the Fed's dual responsibilities of achieving full employment and price stability.
All four major U.S. stock indexes rise
Inspired by Ball's dovish remarks, U.S. stocks performed very well, with all four major indexes rising and the Dow hitting a record high:
- Dow Jones Industrial Average: rose 512.3 points (1.4%) to close at 37090.24 points
- Nasdaq Index: rose 200.57 points (1.38%) to close at 14733.96 points
- S&P 500 Index: rose 63.39 points (1.37%) to close at 4707.09 points
- Philadelphia Semiconductor Index: rose 60.77 points (1.55%) to close at 3990.95 points
