The US Fed is keeping its policy rate unchanged for the third time: here are five key conclusions
The main focuses of the US Fed are: The US Federal Reserve's forecast for rate cuts in 2024, a first since May 2021, fueled bulls in global stock markets.
On Dalal Street, the S&P BSE Sensex zoomed 955 points to hit an all-time high of 70,540, while the Nifty50 climbed over 250 points to hit a new lifetime high of 21,190.
In the broader markets, the BSE MidCap index hit a record high of 36,167.57 (up 0.8 percent), and the BSE SmallCap recorded a fresh high of 41,983.61 (up 0.6 percent).
What has the US Fed done?
The Federal Reserve held interest rates steady at a range of 5.25 to 5.5 percent on Wednesday, signaling in new economic projections that the historic tightening of U.S. monetary policy over the past two years has come to an end and that borrowing costs will be lower fall out. coming in 2024.
A near-unanimous 17 of 19 Fed officials predict that the policy rate will be lower at the end of 2024 than it is today — with the median projection showing rates falling by three-quarters of a percentage point from the current 5.25 percent — 5.50 percent per year. cent range. No officials expect rates to be higher by the end of next year. READ MORE
Key lessons from the US Federal Reserve's December policy
Dovish pivot
The Federal Open Market Committee (FOMC) statement relaxed the wording on further rate hikes, with the points now showing three rate cuts next year.
While FOMC Chairman Jerome Powell insisted that the committee is not yet convinced that the fight against inflation is over, he conceded that the conversation will soon turn to discussing less restrictive policies.
Future discussions will focus on interest rate cuts
Less than two weeks after saying it would be “premature” to speculate on the timing of rate cuts, Powell said FOMC officials were starting to focus on that question.
“That's starting to come into view and is clearly a topic of discussion around the world and also a discussion for us at our meeting today,” Powell said.
Downward revision of the inflation forecast
The US Fed has lowered its inflation forecast, expecting core inflation to ease to 3.2 percent this year, down from September projections of 3.7 percent. They also expect core inflation to reach 2.4 percent by the end of next year, lower than their September forecast of 2.6 percent.
US economy may have a 'soft landing'
The FOMC revised its real gross domestic product (GDP) growth forecast for 2023 to 2.6 percent, up from the previously forecast 2.1 percent.
Although the GDP projection for 2024 has been revised from 1.5 percent to 1.4 percent, the Committee expects GDP growth to increase to 1.9 percent, up from the previously forecast 1.8 percent.
The Committee has maintained its unemployment forecasts.
Labor market in 'sweet spot'
In his statement, Fed Chairman Powell said that the development of the labor market has been very positive.
“It's been a good time for workers to find jobs and get solid raises. The era of this hectic labor shortage is behind us. Wages are still above what would be consistent with 2 percent inflation — the Fed's inflation target — over a long period of time, but are gradually cooling,” he added.
The U.S. economy added 199,000 jobs in November, exceeding economists' expectations of 190,000 new jobs. While US wages rose 4 percent year over year, the unemployment rate fell to 3.7 percent in November and remains historically low.