By Joydeep Sen
The US FedERAL Reserve meeting on December 13, 2023 —where it decided to maintain the Fed rate — was perceived as a pivot, with widespread ramifications on markets all over the world. A report called Summary of Economic Projections is published in every alternate meeting of the Federal Reserve.
This is popularly known as the ‘dot plot’. It is called so, as it contains a chart where each dot represents the view of one member of the US Federal Reserve on Fed rate going ahead. In the dot plot published on December 13, 2023, the future dots are clearly pointing downwards. That is, the Fed has communicated that they are looking at rate cuts going forward.
The median of the dots indicate 75 basis points (0.75%) rate cut in 2024 and further 100 basis points (1%) rate cut in 2025. This is significant. As per the SEP, GDP growth in 2024 is projected to be 1.4% against 2.6% in 2023. That is a steep deceleration. PCE inflation, which is the gauge tracked by the US Fed for decision making – it stands for Personal Consumption Expenditure — is projected to 2.4% in 2024 from 2.8% in 2023. This is about the official “numbers”.
That apart, it is about reading between the lines of the statement published by the Fed. Every word written, or even not written if conspicuous by absence, is analysed. In the press conference post policy announcement, the responses of the Fed chairman are dissected. All in all, it indicated that rate cuts are coming. Now it is a matter of when, not if. As per broad market view, it should start in March 2024. As per some analysts, it may start a little later.
The European Central Bank, in its meeting on December 14, maintained interest rates but its tone was dovish. The ECB has gone soft on its
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