Background Summary 

Fed Funds Rate maintained at 5.25 – 5.50% – In its final meeting of the year, the Federal Open Market Committee (FOMC) decided to maintain the target range for the Federal Funds Rate (FFR) at 5.25% - 5.50%. This decision aligns with the prior guidance from FOMC policymakers and meets expectations outlined in Bloomberg consensus forecasts.

Inflation is trending down – In November 2023, the inflation rate in the United States decreased to 3.1%, marking the lowest reading in five months, down from 3.2% in October. The decline was driven by a 5.4% drop in energy costs, including decreases in gasoline, utility gas service, and fuel oil prices.

Growth was strong, but access to credit has become more constrained – While economic growth remains robust, access to credit has become more restricted due to challenges in the commercial real estate market and higher funding costs for banks.

Minor changes in SEP – The FFR projections were revised lower in the latest SEP. The FFR now is expected to be at 4.6% in 2024 (previous: 5.1%) and 3.6% in 2025 (previous: 3.9%).

Our Expectation 

Maintaining our expectation – The expectation is that the FOMC has concluded its tightening cycle, opting to let the previously implemented interest rate hikes take effect in the coming months. The baseline projection suggests a slowdown in US economic growth in the second quarter of 2024 and beyond, prompting potential adjustments to policy rates by the FOMC in either the 2Q or 3Q2024.

Source: AmInvest Research - 14 Dec 2023