Fed Leaves Rates Unchanged, Signals End Of Hikes

Key Insights

• Fed left the federal funds rate unchanged at 5.25% – 5.5%. 
• Fed’s economic projections changed materially compared to September version.
• Stocks rally as traders prepare for rate cuts in the first half of the next year. 

On December 13, Federal Reserve issued FOMC statement. Fed decided to maintain the target range for federal funds rate at 5.25% – 5.50%, in line with analyst consensus.

Importantly, Fed also released its economic projections which contained significant changes compared to the September release.

The federal funds rate projection for 2024 was changed from 5.1% to 4.6%, while the projection for 2025 declined from 3.9% to 3.6%

Unemployment rate expectations for 2024 remained at 4.1%, while the change in real GDP decreased from 1.5% to 1.4%.

Core PCE inflation projections were changed from 3.7% to 3.2% for 2023 and from 2.6% to 2.4% for 2024.

U.S. Dollar Index pulled back below the 103.30 level as traders reacted to Fed’s economic projections. Fed expects that it will cut rates more aggressively in 2024.

Gold rallied towards the $2,000 level as lower yields are bullish for precious metals.

SP500 tested new highs at 4680 as dovish Fed is a major bullish catalyst for stocks.

Traders should note that Powell’s press conference starts soon, and markets will be extremely sensitive to his words. At first glance, it looks that Fed is ready to cut rates in the first half of the next year.

For a look at all of today’s economic events, check out our economic calendar.