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Fed keeps rates steady, but sees more rate cuts for 2024

Published 12/13/2023, 02:05 PM
Updated 12/13/2023, 05:45 PM
© Reuters

Investing.com -- The Federal Reserve kept interest rates steady on Wednesday for the third straight meeting, and signaled deeper cuts for next year as inflation is expected to cool faster than initially anticipated.  

The Federal Open Market Committee, or FOMC, kept its benchmark rate at a more than two-decade high range of 5.25% to 5.50%. 

Fed sees deeper cuts amid progress on inflation

The Fed removed its forecast for an additional hike this year, projecting that rates have now peaked at 5.4%, and tacked on a further rate cut for next year.

Fed members estimated that the benchmark rate will fall to 4.6% next year, suggesting three rate cuts in 2024, from a prior projection of 5.1%, or two rate cuts. For 2025, Fed members now expects the central bank to lower rates to 3.6% from 3.9% previously. 

The move to forecast a step up in the number of rate cuts for next year was supported by projections that inflation will fall at a quicker pace than previously anticipated.  

Soft landing within reach as inflation to slow faster than expected, labor market to remain largely intact

The Fed sees core PCE, which excludes food and fuel costs and is considered a better gauge of underlying inflation, at 3.2% this year, from a prior estimate of 3.7%. Inflation is expected to fall further next year to a 2.4% pace, down from a prior forecast of 2.6%. In 2025, price growth is seen at 2.2%, below a previous estimate of 2.3%.  

In the press conference following the gathering, Federal Reserve Chairman Jerome Powell cautioned that it was too early to say that the central bank had achieved its goal of taming elevated inflation. 

"No one is declaring victory. That would be premature, and we can't be guaranteed in this progress," Powell said. 

The Fed's outlook on the labor market was largely unchanged from the September meeting, while the unemployment rate was forecast to rise to 4.1% next year and remain at that rate in 2025. 

The backdrop of expectations of a cooling inflation picture and resilient labor market stoked optimism that the Fed may be able to engineer a so-called "soft landing." In this scenario, inflation is defeated without causing a broader economic collapse or a spike in unemployment. 

The growth outlook for this year was increased to 2.6% from 2.1% previously. However, gross domestic product (GDP) is expected to fall to 1.4% in 2024 before picking up the pace to 1.8% in 2025.    

The Powell pushback that many expected, but never arrived

Ahead of the meeting, Powell was expected to push back against aggressive expectations for four cuts for next year as it was only just two weeks ago that he warned it was "premature" to speculate on when the Fed may cut rates.  

But the Fed chief didn't deliver the push back that many were expecting, stoking fresh optimism that rate cuts will get underway as soon as March. 

About 60% of traders expect the Fed to cut as soon as March, compared with about 40% a day earlier, according Investing.com's Fed Rate Monitor Tool. 

"Powell had the opportunity to push back on the market pricing [for aggressive rate cuts next year] .. but he didn't do anything to push back, which is very dovish,"  Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management, told Investing.com's Yasin Ebrahim in an interview Wednesday.      

With about 144 basis points cuts now being priced in for next year, Treasury yields fell sharply. The yield on the 10-year Treasury fell to an August low, sending stocks sharply higher, with the Dow Jones Industrial Average notching a record high.

Latest comments

and let's remember that rates are currently at a historically normal rate around 5%. Why are we itching to drop them when the goal should be to keep them at a normal rate?
what is the purpose of keeping fed rates above 5% when inflation is under 4%?
To keep inflation from reinflating.
I would not trust even monopoly play money to you retrumpliklans
that's what you get when you get your financial news from FoxBusiness....
FoxBusiness is an oxymoron as is FoxNews.
ForBusiness and FoxNews are both examples of oxymoron ns.
Granted all this is a nasty scam; but you can either play the game and make some cool dough or stay the hell out. Don't hover here just to complain. Adults are dabbling here. No room for crying toddlers.
Why cut rates?? Sometimes small s like a dead rat -
Fed didn't cut rates
Fed sees more rate cuts. They havent cut rates in almost 2 years.
What an as—ole
They see cuts in 2024 because they know a major economic downturn is happening in 2024. They never achieved the 2%.
you know things are worse than they are telling you when they've done a full 180 on the message. they've over tightened and now they are trying to talk it back rather than sounding the emergency siren. I think the economy is gonna fall of a cliff in q1
International trade agreements impact markets around the world.
1970's again. Cut / ease too early only to have to come back again. Stocks already all-time high and housing market will shoot up lower rates and labor market way too tight with wage inflation. They made a big mistake but then again they work for the Banks and are gaming the markets again.
remember folks, when the FED starts to cut rates, the market is usually already heading down and it heads down a lot quicker when the cuts come  - that's been the history every time of this scenario we're in now - 2000 and 2008
The non believers will say this time is different.
They are usually cautious - iften too much so, but they can be wrong and a war / food shortage /bank collapse/ fake illness(monkey pox) can change things quickly.
Stop being a bear and a chick and lame and just get SPY now 600 next December
Fast forward to a year from now and unemployment is over 5%, consumers are not spending, and bankruptcy is at an all time high.
Do you live like that?
People don't have much to spend. Christmas is all on credit.
Political decision...
Inflation about to be brutal. Weimar republic 2.0
inflation will remain sticky close to 3% in early '24 so rate cuts maybe first 2nd 1/2, but by then the earnings will have disappointed heavily to to consumer demand fading as we speak.
Merry Christmas and Happy New Year to all. Thanks Jerome and Dark Brandon.
😎😎
good 👍
Shit. Eu asking for support, and usd drops.. Hmm
Lower too early. 1970's . Job market too tight.
right decion
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