• Fed hold rates steady at 5.25%-5.50%
• A more dovish outlook from the FOMC
• Fed officials see 75 basis points of cuts next year
• Fed's 'soft landing' scenario still on the table
• The Fed is now preparing the market for rate cuts when warranted by the data

The Federal Reserve held interest rates steady on December 13 and signalled in new economic projections that the historic tightening of US monetary policy engineered over the last two years is at an end and lower borrowing costs are coming in 2024.

The Federal Reserve Open Market Committee (FOMC) maintained the federal funds rate in the 5.25% to 5.50% range, and announced it would continue its balance sheet runoff. Having last raised the fed funds rate at the FOMC’s July meeting, the decision to leave the policy rate at its current setting marked the third consecutive hold. Along with a somewhat more dovish statement and rate projections, the final meeting for the year delivered the Fed’s clearest message yet that the torrid hiking cycle that began in March of last year has, in all likelihood, come to an end.

The Fed adjusted its language to acknowledge the recent easing in economic data, stating “recent indicators suggest that growth of economic activity has slowed from its strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated”.

In a new policy statement, Fed officials took explicit account of the fact that inflation “has eased over the past year” and said it would watch the economy to see if "any" additional rate hikes are needed - implying directly that, after months of aggressive tightening and a bias towards moving rates higher, they may not need to raise them again.

Source: BIMB Securities Research - 14 Dec 2023