Shift in the direction of interest rates expected for 2024
The Federal Reserve has decided to leave rates at their current level of 5.25% to 5.5% following the conclusion of its latest and last policy meeting of the year today (Wednesday).
The decision was in line with forecasts that central bank policymakers would vote to maintain the borrowing rates for the third consecutive time.
The Fed’s key interest rate still sits at a 22-year high, having been increased at a historically rapid pace since March 2022 to curb inflation, which hit a peak of 9.1% in mid-2022. The inflation rate has gradually decreased – now at 3.1% – but is still well above the Fed’s target rate of 2%.
Prior to the announcement, the US central bank was widely expected to keep rates where they are.
“This would be the third straight meeting where the Fed remained on hold and, in our view, means that the Fed likely sees itself as done with the hiking cycle,” Michael Gapen, economist at Bank of America, was quoted as saying in a CNBC report.
While recognising the possibility of future increases in inflation, prompting the Federal Reserve to implement additional rate hikes, Gapen said “that a cooling economy is more likely, and that the narrative should shift in the direction of cuts over hikes in 2024.”
“Raising the Fed funds rate is off the table,” Wilmer Stith, bond portfolio manager at Wilmington Trust, said. “The issue is how long are we going to be at 5%?”
Some traders predict that the slowing inflation rate will enable the Federal Reserve to stop hiking interest rates and begin cutting them by May.
