Fed sees rates staying high for some time with cuts eyed in 2024

FOMC hints at easing in 2024 while maintaining current rates; China's services PMI hits a 5-month high

By Ahmed Azzam | @3zzamous | 4 January 2024

Market open
  • Policymakers remain open to hiking again if appropriate

  • Minutes cite optimism on inflation, ‘clear progress’

  • China's services sector sees growth, with PMI reaching a 5-month high in December

Fed's 2024 outlook

Federal Reserve policymakers, in their last month's meeting, concurred that a restrictive monetary stance is essential “for some time,” while foreseeing potential rate cuts in 2024. According to the minutes of the Federal Open Market Committee (FOMC) meeting held on December 12-13, officials viewed the policy rate as likely at or near its peak for this tightening cycle. The minutes also conveyed a sense of optimism about inflation control, noting "clear progress."

Rate cut expectations

The FOMC expressed willingness to lower the benchmark lending rate in 2024 if the trend of easing inflation continues. However, the minutes did not indicate an immediate easing, like the one futures traders expect in March. The quarterly projections implied three interest-rate cuts in 2024, totaling about 75 basis points. This updated outlook, paired with Fed Chair Jerome Powell’s comments, spurred a rally in stocks and bonds.

Dot plot

The Fed's "dot plot" revealed varied expectations for the federal funds rate at the end of 2024, indicating a wide range of views among officials. Eight officials anticipated two quarter-point cuts or less, while 11 foresaw three or more.

China's services sector growth accelerates

In China, the Caixin China General Services PMI rose to a five-month high of 52.9 in December 2023 from 51.5 in the previous month. This growth was underpinned by the most significant rise in new orders in seven months, robust foreign demand, and the first increase in employment since September.