The Federal Reserve announces a pause in interest rate hikes
According to CCTV Finance, on the 13th local time, the Federal Reserve of the United States concluded a two-day monetary policy meeting and announced that the target range for the federal funds rate would remain unchanged between 5.25% and 5.5%. This is the third consecutive suspension of interest rate hikes by the Federal Reserve since the September meeting this year. At this point, it is widely believed that the current cycle of interest rate hikes by the Federal Reserve has come to an end. The Federal Reserve has been raising interest rates since March 2022, and as of July this year, it has raised interest rates 11 times, with a cumulative increase of 525 basis points.
Given that the overall inflationary pressure in the United States continues to ease and the inhibitory effect of high interest rates on economic activity continues to emerge, it is widely expected that the Federal Reserve will open a rate cut channel next year. However, there is significant disagreement between financial markets and institutions on when to cut rates.
On the one hand, the US federal funds rate swap market shows that traders expect the Federal Reserve to cut interest rates for the first time as early as March next year, with a cumulative rate cut of 125 basis points for the year. On the other hand, recent economic data shows that core inflation in the United States still has resilience, especially with resistance to further decline in service industry prices. Economists and analysts from financial institutions generally believe that the Federal Reserve needs to maintain interest rates at a high level for a longer period of time. It is expected that the Federal Reserve will start cutting interest rates in the second half of next year, and the cumulative reduction will be significantly lower than market expectations.
The Federal Reserve Chairman stated at the monetary policy press conference that the FOMC (Federal Open Market Committee) does not want to rule out the possibility of further interest rate hikes. Add the word "any" to reflect the Federal Reserve's recognition that interest rates are at or near their peak. At the same time, decision-makers are contemplating and discussing when it is appropriate to lower interest rates; Interest rate cuts have begun to enter the field of vision. The interest rate level has entered a restrictive field; The discussion on the timing of interest rate cuts is still ongoing and a decision will be made very cautiously.
According to CME's "Federal Reserve Observation", the probability of the Federal Reserve maintaining interest rates in the 5.25% -5.5% range in February next year is 83.5%, the probability of a 25 basis point rate hike is 0%, and the probability of a 25 basis point rate cut is 16.5%. The probability of maintaining interest rates unchanged by March next year is 20.9%, the probability of a cumulative 25 basis point cut is 66.7%, and the probability of a cumulative 50 basis point cut is 12.4%.
According to a research report by Galaxy Securities, the market is still pricing the Federal Reserve for a significant interest rate cut in 2024, but the resilience of recent labor data and core inflation means that the Federal Reserve may still maintain a hawkish tone in the short term. The volatility of short-term economic and inflation data will continue to lead to expected divergence between the market and the Federal Reserve. Given the short-term resilience of economic data and the fact that the decline in core inflation has not been stronger than expected, there is still suspicion in the market that the timing and magnitude of interest rate cuts in 2024 may be a race.
Yesterday evening, the three major US stock indexes rose sharply during the trading session, with the Dow Jones up 1.4%, breaking through 37000 points and reaching a historic high; The Nasdaq rose 1.38%, while the S&P 500 closed at 1.37%. Most technology stocks in the US rose, with Apple rising 1.67% to a historic high, while Amazon, Nvidia, and Tesla all rose nearly 1%.