Fed Meeting Update – Dec 2023

Fed Meeting Update – Dec 2023

fed meeting update dec 2023

Fed Meeting Update and News:

Federal Reserve’s Key Decisions (Wednesday):

  • Maintained key interest rate for the third consecutive time.
  • Signaled an imminent series of rate cuts in 2024 and beyond.

Backdrop and FOMC Consensus:

  • Amid moderating inflation and a resilient economy.
  • Unanimous consensus among Federal Open Market Committee (FOMC) policymakers.
  • Kept the benchmark overnight borrowing rate within the 5.25%-5.5% range.

Committee’s Forward Projection:

  • Projected at least three rate cuts in 2024, each in quarter percentage point increments.
  • More assertive stance than previously communicated by officials.
  • Market expectation was four cuts.

Market Response:

  • Markets widely anticipated the decision, signaling a potential end to an 11-hike cycle.
  • Dow Jones Industrial Average surged over 400 points, surpassing 37,000 for the first time.

Dot Plot and Future Expectations:

  • The committee’s “dot plot” indicated four additional cuts in 2025, totaling a full percentage point reduction.
  • Further reductions in 2026 are forecasted, bringing the fed funds rate to 2%-2.25%.

Market’s Aggressive Response:

  • Post-meeting and Chair Jerome Powell’s press conference led to markets pricing in even more aggressive anticipation of 1.5 percentage points in reductions the following year, doubling the FOMC’s pace.

Shift in Language and Policy Direction:

  • A noteworthy shift in language within the statement suggested a potential conclusion to interest rate hikes.
  • The committee explicitly stated consideration of “any” prospective policy tightening, not previously emphasized.

Rick Rieder’s Commentary (BlackRock):

  • “While the weather is still cold outside, the Fed has suggested a potential thawing of frozen high-interest rates over the next few months.”

Balance Sheet Policy:

  • Federal Reserve continued allowing up to $95 billion monthly proceeds from maturing bonds to roll off its balance sheet.
  • No indication of willingness to curtail this aspect of policy tightening.

Record Highs and Investor Reaction:

  • Post-announcement, the Dow Jones Industrial Average achieved a record high, closing at 37,090.24.
  • S&P 500 and Nasdaq Composite also recorded significant gains, reaching fresh 52-week highs.

Inflation Acknowledgment and Forecast Adjustment:

  • Fed’s meeting statement acknowledged that inflation “has eased” over the past year.
  • The central bank formally lowered its inflation forecast 2024 to a 2.4% rate, down from the previously forecasted 2.6%.

Gina Bolvin’s Commentary (Bolvin Wealth Management Group):

  • “The Fed has given the market an early holiday gift today when, finally, for the first time, they have commented positively about inflation.”
    Suggests the Fed is aligning with the market’s direction, potentially sustaining the Santa Claus rally.

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