Fed holds rates steady, teases 3 cuts next year

The Fed brought us some pre-holiday cheer on Wednesday, holding interest rates steady and hinting at three rate cuts in 2024. Fed members voted unanimously to keep the benchmark interest rate at 5.25%–5.5% for the third straight meeting.

The news certainly made markets festive: The Dow Jones rose more than 400 points to set a new record following the announcement, and the S&P and Nasdaq also jumped.

“The market is celebrating” the fact that the Fed’s decision “moved closer to themarkets,” Jon Maier, chief investment officer of Global X told CNBC. “This isn’t just a mere decision to maintain current rates; it’s a commendation for an economy that appears to be aligning with the Fed’s long-term objectives.”

In its economic projections, the Fed predicted the federal funds rate will drop to 4.6% in 2024 and 3.6% in 2025. That would indicate three more rate cuts next year and four in 2025.

An optimistic Fed: The Fed noted in its statement that economic growth has “slowed from its strong pace in the third quarter.” Nevertheless, its predictions for GDP growth got rosier. It now sees real GDP reaching 2.6% in 2023, half a point higher than it predicted in September.

The agency predicts inflation for personal consumption expenditures will drop to 2.8% this year and to 2.4% in 2024, and that it will reach its goal of bringing inflation down to 2% in 2026.

“We’re seeing inflation making real progress," Fed chair Jerome Powell said during a press conference, Reuters reported. “Declaring victory would be premature...But of course the question is ‘when will it become appropriate to begin dialing back?’”