Title: Federal Reserve Signals Plans to Cut Interest Rates in 2024
Federal Reserve chair Jay Powell sent a strong message on Wednesday that the US central bank is preparing to cut rates in 2024, leading to a surge on Wall Street as investors welcomed the news of potential lower borrowing costs.
Despite holding the interest rates at a 22-year high, the Fed’s new forecasts indicated a more dovish outlook for rates, with officials pointing to 75 basis points worth of cuts next year.
Powell’s remarks after the decision suggested a shift in tone from the central bank, with the benchmark rate now likely at or near its peak for the tightening cycle. The Fed’s dot plot also showed that most officials expected rates to end next year between 4.5 per cent to 4.75 per cent.
The prospect of a steeper pace of rate cuts triggered a rally in US stocks and a significant decrease in Treasury yields. The benchmark S&P 500 gained 1.4 per cent to close at its highest level since January 2022.
In a statement, the Fed outlined the conditions under which it would consider further policy firming, signaling a softer approach that may not require additional rate hikes.
Powell reiterated the Fed’s commitment to carefully proceeding with future rate decisions, mindful of the need to avoid restricting the economy longer than necessary.
The latest decision comes as the Fed aims to drive inflation down to its 2 per cent target without causing excessive job losses, amid expectations of slowing economic growth.
Traders in futures markets had anticipated the Fed to begin lowering borrowing costs as early as March, with expectations of more than a percentage point cut next year.
The looming question is how the Fed will respond if the economy holds up while inflation falls. Some officials have indicated that loosening monetary policy may still be necessary to prevent interest rates from becoming too restrictive for households and businesses.
The Fed’s signals have already had a significant impact on markets, and investors will be closely watching for further developments as the central bank navigates the path ahead.