Fed Closes 2023 FOMC Meeting Slate With No Rate Hikes

A tentative timeline toward rate cuts in 2024 was revealed in the updated Summary of Economic Projections.

• The Federal Reserve (Fed) elected to not raise the federal funds rate at the December 2023 Federal Open Market Committee (FOMC) meeting.
• It is the third consecutive meeting during which the central bank has chosen to hold interest rates steady.
• The federal funds rate target range remains 5.25%-5.50% and the Fed's cumulative total increase sits at 525 basis points (bps) since March 2022, with a total increase of 100 bps occurring in 2023.
• In its updated Summary of Economic Projections (SEP) and dot plot, the central bank indicates it is expecting to cut interest rates three times in 2024.

Markets reacted very favorably to the news emanating from the Fed’s December 13, 2023, FOMC meeting. The central bank elected to hold the federal funds rate steady for a third consecutive meeting, while also setting a course toward rate cuts in 2024, with three penciled into its updated dot plot.

“It is clear that unless a surprise with inflation occurs, the Fed is done increasing interest rates during this tightening cycle, even though it has left the door open to additional hikes,” said Raymond James Chief Economist Eugenio Alemán.

The widely expected move to leave the federal funds rate unchanged keeps the target range at 5.25%-5.50%. Since June, the Fed has elected to raise rates just once – a 25 bps hike in July – which brought 2023’s cumulative total increase to 100 bps; a far cry from 2022, which saw 425 bps of hikes.

“Inflation has eased from its highs, and this has come without a significant increase in unemployment,” said Fed Chair Jerome Powell in his post-meeting press conference. “That’s very good news.”

The Fed also downgraded its 2024 GDP forecast and Powell highlighted that economic data has shown signs of slowing and that there are risks if the Fed were to keep higher rates for too long.

“As we suspected, the Fed has pivoted and opened the door to multiple interest rate cuts in 2024,” said Raymond James Chief Investment Officer Larry Adam. “The Fed’s communication highlighting that economic growth has slowed, inflation continues to ease, and the median dot suggesting three instead of two rate cuts next year indicates the Fed believes the current interest rate environment is too restrictive for the economy.”

With the recent decisions to hold the federal funds rate steady and the updated 2024 forecast of three rate cuts, it appears the Fed’s longstanding hawkish tone on inflation is softening.

“If markets were looking for a dovish pivot by the Fed, we believe that this is the closest the Fed has been to one in almost two years,” said Alemán.

All expressions of opinion reflect the judgments of the Raymond James Chief Investment Officer and Raymond James Chief Economist and are subject to change.

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