Interested in all the wonkish details about the Federal Reserve’s final meeting this past Wednesday? If so, this article will bring “joy to your world.” See what we did there?
For the cliff notes version of what this means to us investors, click here for Hook’s version.
For the details, keep reading.
The Federal Reserve had its final meeting of the year this past Wednesday. They decided to keep interest rates unchanged, keeping the target range for the federal funds rate at 5.25%-5.5%. Central bank officials predict we will see rate cuts in 2024, with interest rates expected to tick down to 4.6% next year.
Along with its policy announcement, the Fed released updated economic forecasts in its Summary of Economic Projections (SEP), including its “dot plot,” which maps out policymakers’ expectations for where interest rates could be headed.
Fed officials see the federal funds rate peaking at 4.6% in 2024, down from the Fed’s previous September projection of 5.1%. That suggests the Fed will cut rates by 0.75% next year. The Fed has moved in 25 basis point increments over the last year, indicating the central bank now expects to cut interest rates three times in 2024.
Immediately following the SEP’s release, markets were pricing in a nearly 60% chance the Federal Reserve will begin to cut rates at its March meeting, up from 40% the day prior, according to data from the CME Group.
Seventeen officials predict a rate cut next year, with five officials seeing a decrease of more than 0.75%, while just two see no cut. No officials see rates ticking higher in 2024. This month’s expectations for rates next year were also less widely distributed compared to September’s projections.
The forecast was also revised lower for 2023 to match the Fed’s hold. As recently as September, officials had forecast one more rate hike this year. At the end of 2022, officials had projected interest rates would peak at 5.1% in 2023.
The SEP indicated the Federal Reserve sees core inflation peaking at 2.4% next year — lower than September’s projection of 2.6% — before cooling to 2.2% in 2025 and 2.0% in 2026.
Officials see unemployment rising to 4.1% in 2024, matching the previous forecast. Unemployment is expected to remain at that level through 2026.
Confused yet? Here’s Howard’s condensed version of the Federal Reserve meeting:
| The Fed’s Statement | Howard’s Take |
| The interest rate hiking cycle is over. | The Fed can, and sometimes does, change its mind. |
| The Fed predicts future rate declines due to the softening of economic growth. | Why else might they lower rates. We’re entering an election year. |
| There is an overwhelming consensus that rates will be lower in 2024. | There are no guarantees. Remember how the events of 2020 thwarted the rate hike expectations? |
| Don’t fight the Fed. | Own bonds in your portfolio. |
| The market is pricing in 60% likelihood of rate cuts by March. | Stay diversified. |
Still have questions? As always, feel free to reach out to your advisor. We’re always happy to answer your questions.
