The S&P 500 Index gained 1.4% on Wednesday following the Federal Reserve's more dovish than expected commentary on monetary policy.
The median dot is now implying three rate cuts in 2024, compared to two in September. Traders are now betting on the success of Jerome Powell's attempt to engineer a soft landing for the world's largest economy.
According to Bloomberg, the markets are now pricing in as many as six rate cuts by the Fed in 2024, which is sending yields lower and stocks higher.
S&P 500 added a further 0.3% in premarket trade Thursday to consolidate gains above 4700 after the yield on a 10-year note fell below 4% for the first time in four months.
Here are analyst reactions to FOMC’s statement and Chair Powell’s speech.
Wells Fargo: “The equity market got what it wanted: more expected easings as dots indicate 75bps (not 50bps) in 2024. You didn't have to tell equities twice. SPX move… We continue to believe the market is overconfident and underestimating uncertainty.”
Goldman Sachs: “In light of the faster return to target, we now expect the FOMC to cut earlier and faster. We now forecast three consecutive 25bp cuts in March, May, and June to reset the policy rate from a level that the FOMC will likely soon come to see as far offside, followed by quarterly cuts to a terminal rate of 3.25-3.5%, 25bp lower than we previously expected.”
Deutsche Bank: “While our baseline remains that the first rate cut is likely to come in June 2024 and that the Fed will reduce rates by 175bps next year, [yesterday’s] meeting points to dovish risks to this expectation. We see heightened risks that rate cuts could come as early as March. Earlier policy easing in the presence of more substantial disinflation would improve soft landing prospects.”
Citi: “Fed officials will refer to the slowing inflation backdrop as the reason for their cuts, but we think they are also motivated by growing concerns that a recession will ensue without an easing in financial conditions. Banished in coming months will be discussions of upside risk to inflation, but these remain significant, in our view. Our base case remains for a first 25bp cut in July with 100bp total in 2024, but the dovish meeting increases the risks of earlier and/or more cuts.”
BofA: “The Fed simply wiped away its hawkish December move and returned to its prior June outlook. We maintain our outlook for a cutting cycle that begins in June of 2024, though we note the incoming data and translation of CPI outturns into forecasts of PCE inflation pose risks to an earlier - or faster - cutting cycle than we currently project. We cannot rule out a March cut solely on inflation data, while any sharp deterioration in the macro data would make such a decision easier.”
Macquarie: “Our policy view is unchanged. We believe the rate hike cycle is complete, but that rate cuts are unlikely until 2Q24. We see significant easing in 2H, however, and overall cuts of 225 bps in 2024 driven by a continued moderation in core inflation and an undesirable rise in unemployment.”