As investors peer into 2024 the issue that is top of mind is how much the Federal Reserve will ease monetary policy in the coming year. Before this week’s Federal Open Market Committee meeting, investors were optimistic about the Fed easing policy next year, and the bond market was pricing in rate cuts of a full percentage point to 4.25-4.5 percent by year’s end.
The Fed did not disappoint investors this time, as it signaled it was close to pivoting monetary policy. As Nick Timiraos of the Wall Street Journal notes, this represented a dramatic change in chair Jerome Powell’s stance from two weeks prior when he stated “It would be premature to… speculate on when policy might ease.” Following the FOMC meeting, Powell said that rate cuts were “coming into view” and “clearly a topic of discussion.”
The principal reason is officials are more confident that inflation is on the path toward its 2 percent target in the wake of a series of benign readings. The median expectation of Fed officials in the December FOMC projections calls for the core rate of personal consumption expenditures to fall to 2.4 percent next year from 3.2 percent this year.
The “dot plot” indicates that most participants anticipate three rate cuts of one-quarter point each in 2024. Additional cuts totaling 175 basis points are expected in the next two years such that the fund rate would fall below 3 percent by the end of 2026.
This news spurred large rallies........