Dec 14, 2023: The Federal Reserve opted to maintain interest rates at their over two-decade high during its final two-day policy meeting of 2023. Nevertheless, officials hinted at a forthcoming series of cuts in the upcoming year, sparking significant surges in both stock and bond markets. Attention now turns to European central banks, where market observers await indications of a potential dovish stance, similar to the Fed’s approach.
Fed Holds Rates Steady, Hints at 2024 Rate Cuts
The Federal Reserve, in a unanimous decision by the Federal Open Market Committee, sustained interest rates within a range of 5.25% to 5.50% on Wednesday. However, the central bank’s quarterly “dot plot,” outlining future rate expectations, revealed a shift in policy direction, projecting three quarter-point cuts in 2024—a notably more dovish stance compared to earlier predictions.
During the post-decision commentary, Fed Chair Jerome Powell acknowledged the likelihood of being “at or near the peak rate for this cycle.” Powell indicated a potential pivot in the Fed’s focus, moving from quelling heightened inflation to preventing a surge in unemployment. This suggests a possible shift in policy strategy to prevent a recession due to an overly restrictive approach.
Futures Rise Following Surge in U.S. Averages
U.S. stock futures signaled an upward trajectory on Thursday, extending the robust gains witnessed in the prior session prompted by the Fed’s projected rate reductions in the upcoming year.
As of 05:01 ET (10:01 GMT), Dow futures surged by 43 points or 0.1%, S&P 500 futures showed an 8-point increase or 0.2%, while Nasdaq 100 futures surged by 52 points or 0.3%.
Major indices on Wall Street experienced notable spikes on Wednesday, with the Dow Jones Industrial Average hitting a record high. The benchmark S&P 500 reached its highest closing level since 2022, while the tech-heavy Nasdaq Composite climbed 1.4%.
U.S. Treasury yields declined in response to the Fed’s forward-looking projections. The 2-year Treasury yield dropped to its lowest since June, and the 10-year yield reached its weakest point since August, a trend typically associated with rising bond prices.
Dollar Weakens, Gold Sees Uptick
The dollar slumped to a four-month low on Thursday, as market sentiment leans towards the Fed’s potential rate cuts early next year.
Market projections now indicate an approximately 74% likelihood of the central bank implementing a 25 basis-point cut in March, followed by another quarter-percentage reduction in May, according to Investing.com’s Fed Rate Monitor Tool.
The anticipation of decreasing rates might deter foreign investments, influencing a decline in the dollar’s relative value. As of 05:01 ET, the dollar index, measuring the U.S. currency against its counterparts, dropped by 0.3% to 102.6.
