Federal Reserve sparks market rally as it signals rate cuts in 2024

investmentweek.co.uk:

Jerome Powell (pictured), chair of the US Federal Reserve

This marks the third consecutive pause since rates reached this peak in July, and the decision came alongside new forecasts from central bank officials pointing to 75 basis points worth of cuts next year.

The dovish shift sparked a rally in equity markets, with the Dow Jones index closing at a record high on the day, jumping over 1.3% from the time Powell began speaking.

US inflation falls to 3.1% in November

US inflation fell in line with expectations on Tuesday (12 December) to 3.1%, and in his post rates press conference yesterday (13 December), Jerome Powell, chair of the Federal Reserve, said that reflecting on the course of 2023 inflation had «eased» without coming at the cost of rising unemployment, which he described as  «very good news».

Powell added that although inflation had declined "[it] is still too high and ongoing progress to bring it down is not assured". «The path forward is uncertain,» he said.

The overall change in the Fed's messaging around rate cuts was a «surprise», according to Benjamin Schroeder, senior rates strategist at ING.

He said Powell had «almost endorsed» the rate cut narrative markets had been pricing in the past few months.

CBI forecasts no Bank of England rate cuts until at least 2026

«The tone in the statement acknowledged a slowdown in inflation more than it did in November,» he said. «The Fed considers financial conditions tight, despite the global tightening in interest rates seen over the past month...which leads us to question whether he knows something of significance that we do not.»

The summary of economic projections includes three rate cuts in 2024, and four in 2025, «more than the market anticipated,» Gabriele