The last Federal Reserve meeting of 2023 has come and gone. And the answer, for all those who were watching on tenterhooks the whole time, is about what you likely expected: no change. The Fed has left rates alone, sitting at a high not seen in the last 22 years. According to the Fed’s latest remarks, inflation has slowed down sufficiently to make further hikes somewhat unnecessary, and the potential for cuts in 2024 is now in play.
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Currently, the federal funds rate—the rate at which banks lend their excess reserves to each other, usually for an overnight stay—sits at between 5.25% and 5.5%, the highest in decades. While the exact extent of all the rate hikes is unclear, the Fed is sufficiently pleased to start looking at future rate cuts.
The Fed Expects Three Rate Cuts in 2024
The next set of cuts is likely to take place next year, and preliminary plans are calling for three rate cuts to take place throughout the course of 2024. Of course, it reserves the right to change this plan throughout 2024, but right now, that’s how it’s all shaping up. With the Personal Consumption Expenditures index in decline, and having been in decline since June, the Fed is sufficiently convinced that inflation is slowing down. Given that the Personal Consumption Expenditures index doesn’t cover food or energy costs, some believe it’s an insufficient measure. But with home loans and business loans much harder to come by now, the time may be coming to cut back or risk strangling the economy as a whole.
How Are the Markets Taking It?
Turning to Wall Street, a look at the SPDR Dow Jones Industrial Average ETF Trust (DIA) should give us some insight into how the markets are responding to this latest pause. The answer: somewhat. The DIA is up fractionally as a result of the Fed’s stance, and though it spent most of today flat, it shot up right after the announcement came out. A look at the last year, however, shows that DIA has been steadily gaining ground since late October after a general and uneven decline that started back in August.
