The Federal Reserve has paused interest rate hikes for 3 consecutive times! It is expected to cut interest rates 3 times in 2024, Powell: The possibility of continuing to raise interest rates is not ruled out

Source of this article: Times Finance Author: Liu Ziqi

Source: Diagram Worm

In the early morning of December 14, Beijing time, according to the minutes of the Federal Reserve's latest Federal Open Market Committee (FOMC) monetary policy meeting, the Fed decided to slow down the pace of interest rate hikes in December and maintain the target range for the federal funds rate between 5.25% and 5.50%.

Source: Federal Reserve

On the same day, the Federal Reserve also released the latest economic outlook expectations, according to the dovish signals released by the dot plot, the median federal funds rate is expected to be 4.6% in 2024, calculated at 25 basis points per rate cut, which is equivalent to a total of three interest rate cuts next year, exceeding market expectations.

Source: Federal Reserve website

In addition, FOMC members expect the federal funds rate to be 3.6% at the end of 2025, 2.9% at the end of 2026, and 2.5% for the long-term federal funds rate.

However, the prediction of the dot plot may not be accurate. The dot plot released at the September meeting hinted at another rate hike in 2023, but the Fed has since paused the pace of rate hikes.

Fed Chairman Jerome Powell said at the monetary policy conference that policymakers are thinking about and discussing when it is appropriate to cut interest rates, and the FOMC does not want to rule out the possibility of continuing to raise interest rates. However, Powell himself believes that a rate hike next year is very unlikely. Powell added that even if there is no recession, the Fed is willing to cut rates and will not wait until 2% inflation to cut rates because it will be too late, it will exceed the target, and it will take some time for policy to affect the economy.

According to CME's "Fed Watch", the probability that the Fed will keep interest rates unchanged in the range of 5.25%-5.5% in February next year is 83.5%, the probability of raising interest rates by 25 basis points is 0%, and the probability of cutting interest rates by 25 basis points is 16.5%, and the probability of keeping interest rates unchanged by March next year is 20.9%, the probability of a cumulative rate cut of 25 basis points is 66.7%, and the probability of a cumulative rate cut of 50 basis points is 12.4%.

Galaxy Securities Research Report believes that the market is still pricing in a relatively large interest rate cut by the Federal Reserve in 2024, but the resilience of recent labor data and core inflation means that the Fed may still maintain a hawkish tone in the short term, and the shock of short-term economic and inflation data will continue to make the market and the Fed guide to form an expected divergence. With economic data remaining resilient in the short term and core inflation not falling stronger than expected, the market is still suspected of "running ahead" on the timing and magnitude of interest rate cuts in 2024.

Pan Helin, co-director and researcher of the Digital Economy and Financial Innovation Research Center of Zhejiang University International Business School, told Times Finance that the first interest rate cut in 2024 may be in March or May, and it is expected that the Fed's benchmark interest rate will fall below 4% by the end of 2024. "It can be seen that the cycle of a weak dollar has begun. Pan and Lin said.

The Fed has started the current round of interest rate hike cycle since March 2022, and as of July this year, it has raised interest rates 11 times, with a cumulative rate hike of 525 basis points. This is the third time the Fed has paused interest rate hikes since its September meeting. The Fed paused its rate hikes once in June and resumed them in July.

Affected by the Federal Reserve's "interest rate cut signal", on the evening of December 13, the three major U.S. stock indexes rose sharply intraday. Among them, the Dow rose more than 500 points to 37,000 points, hitting a record high, and the S&P 500 and Nasdaq both hit new highs since the beginning of last year. In addition, COMEX gold and London spot gold both rose more than 2%; COMEX silver and London spot silver rose more than 4%, cloth oil rose nearly 2%, and U.S. oil rose 1.84%. The dollar index fell sharply by 0.96% to settle at 102.865.

In this regard, Pan and Lin said that the Fed's monetary easing is good for non-US economies around the world, which can reduce the pressure on interest rate spreads and give China more room to cut interest rates.