Rate Hike Cycle Over, Soft Landing Ahead, Allianz's Ripley Says

Charlie Ripley, Senior Investment Strategist for Allianz Investment Management, said "investors can now fully believe the Fed is done hiking rates for this cycle."

"Furthermore, the dovish tone coming out of the meeting minutes with 75 basis points of rate cuts, not only signals the Fed is declaring victory on inflation, but moreover sets the table for Powell and team to manufacture a soft landing for the economy," Ripley said.

Ripley noted that the Fed is maintaining the option of further tightening if needed to keep inflation under control, adding that "investors should be wary of the pace and timing of cuts, so they don’t get ahead of themselves."   

Markets Cheer Fed News

The 澳洲幸运5官方开奖结果体彩网:Dow Jones Industrial Average surged 1.4%, gaining more than 500 points to top 37,000 for the first time and close at 37,090. The Nasdaq and 澳洲幸运5官方开奖结果体彩网:S&P 500 also gained 1.4% to close at their highest levels since January 2022. Treasury yields plummeted, with the benchmark 10-year yield fa🧔lling to✱ a five-month low of about 4.01%.

Markets Eye Big Rate Cuts in 2024

Market optimism about the possibility of rate cuts happening soon and often in 2024 rose during Fed Chairman Powell's press conference.

Trading in fed fund futures indicated that market participants are pricing in a 75% chance that the Fed will start cutting rates at its March meeting, up from just under 50% before the Fed announced its rate decision, according to the CME Group's FedWatch tool. The market is pricing in a 98% chance that the rate will fall at least 100 basis points by the end of 2024, with many expecting much deeper cuts.

Fed Officials Increasingly See "Soft Landing"

Fed officials increasingly see the economy coming in for a "soft landing" from the recent episode of high inflation, rather than the crash that has historically followed past cycles of rapid price increases and Fed rate hikes.

FOMC participants expect the Gross Domestic Prod♚uct to grow at a modest rate of 1.4% in 2024, far below the blistering 5.2% pace in the third quarter of this year and a downgrade from the 1.5% they expected in September, but not a recession, and the unemployment rate ticking🌼 up to 4.1% from its current rate of 3.7%, not the mass layoffs they had been bracing for earlier this year.

"We see the same thing other people see, which is a strong economy, which really put up quite a performance in 2023," Powell said. "We see good evidence and good reason to believe that growth will come in lower next year ... we'll also be looking to see progress on inflation and with the labor market remaining strong but but ideally without seeing the kind of large increase in unemployment that happens sometimes."

-Diccon Hyatt

ꦜFormer NY Fed President Dudley Says Market Getti🐬ng Ahead of Itself

Former New York Fed president William Dudley said after the press conference that it's clear the Fed is done with rate hikes. "The question is really just timing of rate cuts, and magnitude," he said on Bloomberg TV.

Dudley caut🔯ioned that there are things that can go wrong whether the Fed keeps rates too high for too long or cuts prematurely.

He also noted that the market itself could "ease financial conditions prematurely, which will stimulate the economy and make it so that the Fed can't cut rates at all quickly, as the market expects." He said that the market may be getting ahead of itself in assuming there will be very large cuts in rates next year.

R💃ate Cuts Will Come Before Inflation Reaches 2% Target

As he has several times in past press conferences, Powell said the Fed was attentive to the risks of lowering inflation too much. He said rate cuts would come at some point before the inflation rate actually reached 2%. "It takes a while for policy to get into the economy, affect economic activity, affect inflation," he said.

-Diccon Hyatt

D💎ays of Sky-High Returns on CDs, Hi🍨gh-Yield Accounts Could be Numbered

The Fed's signaling rate cuts has implications for borrowers as well as savers. This year, depositors have been offered the 澳洲幸运5官方开奖结果体彩网:highest returns in decades on certificates of deposit and high-⭕yield savings accounts, but those days ma🌺y be coming to an end.

"The Fed virtually made it official that there’ll be no more rate hikes this cycle," Robert Frick, corporate economist with Navy Federal Credit Union, said in a statement.

"That’s a call to action for savers to lock in current high CD rates and other rates in safe vehicles such as treasuries. Those rates will likely only drop from here, and given they’re higher than the rate of inflation, savers can earn real returns for now."

-Diccon Hyatt

Today's Powell-Induced Stock Move is Unusual

The jump in stocks goes against the historical pattern. Whenever the current Fed chair speaks at a post-statement press conference, markets ℱtypically move in the opposite direction that they did whenᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚ the statement was first released, a study by Harvard𒈔 researchers earlier this year found.

-Diccon Hyatt

Stocks Race Higher, With Dow at New High

Stocks, already up on the Fed’s interest rate decision ꦜand economic projections, charged higher as Chair Jerome Powell took to the lectern.

The Dow jumped 1% to trade at an all-time high of 36,960. The S&P 500 surged 1.2% to nearly 🅰ꦿ4,700, and the Nasdaq rose above 14,700 for the first time since January 2022.

Treasury yields tumbled, with the benchmark 10-year yield falling to 4.03%, its lowest since August. Shorter-term debt fell even farther; the 2-year yield plum𝐆meted more than 27 basis points.

-Colin Laidley

Fed View Getting Closer to Market View

The Fed's dropping its expectations of further rate hikes brings the central bank's official position more into line with the positioning of financial market participants. For months, markets have priced in little if any chance of another hike.

"The Fed is catching up with the reality that the credibility of its threats to hike again has been near-zero in markets for some time now," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a commentary.

-Diccon Hyatt

Relief for Homebuyers

The Fed's new stance could bring some relief to would-be homebuyers waiting for mortgage rates to fall, one economist predicted.

"This is good news for the housing and mortgage markets," Mike Fratantoni, chief economist of the Mortgage Bankers Association, said in a statement. "We expect that this path for monetary policy should support further declines in mortgage rates, just in time for the spring housing market."

-Diccon Hyatt

Fed Officials Discuss When to Cut, But Leave Possib♌ility of Hikes on Table

Earlier this month, Powell 澳🦩洲幸运5官方开꧅奖结果体彩网:said speculation about rate cuts was "premature." That's no longer the case: at this week's meeting, FOMC members discussed when to start cutting rates, Powell said. Still, FOMC members wanted to acknowledge that no further hikes are currently expected, but "didn't want to take the possibility of furthಞer hikes off the table," Powell said in response to a quest🦂ion.

-Diccon Hyatt

Powell Says👍 Rate Likely at Peak, But Inflationꦑ Goal Not Assured

Powell confirmed that the fed funds rate ha🔥s likely reached its peak, but cautioned that could change if inflatio💧n proves more stubborn than anticipated.

"While we believe that our policy rate is likely at or near its peak for this tightening cycle, the economy has surprised forecasters in many ways since the pandemic, and ongoing progress towards our 2% inflation objective is not assured."

-Diccon Hyatt

Powell Balanced in Opening Remarks

Federal Reserve chair Jerome Powell began his post-statement press conference with a balanced statement. "Inflation has eased from its highs, and this has come without a significant increase in unemployment, that's very good news," he said. "But inflation is still too high, ongoing progress in bringing it down is not assured, and the path forward is uncertain." He also noted that the full effects of monetary tightening have likely not been felt.

Officials No Lo🌳nger Predicting the Need for Rate Hikes

While the FOMC's official statement maintained the central bank is willing to raise its rate again if needed, officials no longer predict having to make any more hikes. None of the policy committee members anticipate raising the rate again, according to the summary of economic projections.

-Diccon Hyatt

Markets Placing Their Bets on Rate Cuts

Market participants are now pricing in a 60% chance that the Fed will cut rates at its March meeting, according to 澳洲幸运5官方开奖结果体彩网:CME Group's FedWatch tool. The data also indicate that th🍸ere's a 90% likelihood that the Fed will cut rates b🐻y at least one full percentage point by the end of 2024. Markets are reading dovish signals into the FOMC statement, which added language acknowledging a slowing economy and falling inflation.

Fed Officials Now See More 2024 Rates Cut✅s Than They Did in Sept𓄧ember

The Fed projects cutting its benchmark rate by 75 澳洲幸运5官方开奖结果体彩网:basis points by the end of next year. The last time the Fed's policy committee members made pr🔯ojections in September, they only had penciled in a 25 basis-point cut.

-Diccon Hyatt

Stocks Gain Ground, Treasury Yields Decline

U.S. stocks moved higher after t🌟he Fed announced its decision to hold rates steady while releasing projections that indicate the central bank expects three rate cuts next year.

After treading water for most of the session ahead of the announcement, the S&P 500, Nasdaq Composite and Dow Industrials were all up𒁃 0.6% about 15 minutes after the announcement. All three indexes are at their highest levels of the year, amid 🔯hopes that the Fed will be able to start cutting rates soon.

The yield on 10-Year Treasurys fell to 4.09%, from about 4.15% just befor🐟e th♊e announcement. The 10-Year yield was as high as 5% in late October.

Fed Likely to Hold Rates Steady on Wednesday