Everything You Need to Know About the Fed DEC Meeting

• The Fed maintains the US interest rates unchanged as expected
• The US Central bank validates relatively the markets interest rates expectations

The Federal Reserve members-maintained interest rates as expected, keeping them unchanged at 5.5% for the third consecutive meeting. This decision tacitly acknowledged the weakening performance of the American economy and a downward trajectory in inflation levels. The Chairman of the Federal Reserve explicitly mentioned that inflation levels have dropped substantially. Consequently, the expectations of Open Market Committee members regarding future interest rates now align, to some extent, with market projections of a potential reduction in US interest rates in the upcoming year.

The Federal Reserve also adjusted its forecasts issued in September for the next year. The central bank revised its growth projections downward from 1.5% in 2024 to 1.4%, while maintained unemployment forecasts at 4.1%. Additionally, it anticipated a drop in inflation levels to 2.4% in 2024, compared to the previous estimate of 2.5%. These revised expectations have strengthened the market’s belief in the “soft landing” assumption or (the avoidance of an economic recession in the coming period) despite the ongoing inversion of the yield curve. Consequently, the US stock indices experienced an upswing, with the Dow Jones Index reaching its highest historical levels.

Additionally, a the FOMC dot plot was disclosed, revealing the Federal Reserve members’ expectations regarding the trajectory of interest rates over the next two years. These points suggest the potential of a 75-basis points reduction, bringing median rates to 4.6%, initially differing from the market’s expectation of a cut exceeding 100 basis points. The dot plot rules out the possibility of the reduction commencing in March, making May 2024 a more realistic starting point. Looking ahead to 2025, the map indicates the potential continuation of the reduction by 100 basis points. In the longer term, it seems that Federal Reserve members believe the neutral interest level (which neither stimulates nor contracts economic growth) is at 2.5%.

Consequently, the US dollar prices declined, with the dollar index printing a multi-month low. In contrast, the gold price surged by approximately 2.5%, closing yesterday’s session above the $2025 per ounce threshold.