IEF - Merry Pivot! 3 Takeaways From The Federal Reserve Meeting

2023-12-15 10:30:00 ET

Summary

• The Federal Reserve backtracked somewhat in its dot plot, which charts members' expectations for rates.
• There weren't a lot of changes to the announcement itself, but there was one key word added to a sentence.
• It sounds to me like higher rates are going to be very transitory - a holiday gift from Fed Chair Jay Powell to the markets.

As expected, the Federal Reserve (Fed) kept rates steady for the third month in a row on Wednesday. Here are my three key takeaways from the dot plot and Fed Chair Jay Powell's press conference ¹ :

1. The Fed backtracked somewhat in its dot plot, which charts members' expectations for rates. June’s dot plot implied 1% in cuts for 2024, and the September dot plot implied 0.50% in cuts for 2024. The December dot plot shows an implied 0.75% in cuts for 2024. In my view, that's definitely more realistic than September's estimate, although I think the June dot plot will prove to be even more accurate.
2. There weren't a lot of changes to the announcement itself, as the Fed acknowledged growth has slowed and inflation has eased (but remains elevated). However, there was one key addition to this sentence - the word "any": "In determining the extent of any additional policy firming..." In other words, it’s very unlikely that we will see any more rate hikes. This may go down in monetary policy history as the Great Pivot of December 2023.
3. In my opinion, it's clear from the announcement and press conference that rates are not going to be higher for longer. In fact, it sounds to me like higher rates are going to be very transitory - a holiday gift from Powell to the markets. Merry Pivot!

Footnote:

¹ Source for all: FOMC Press Conference December 13, 2023, Federal Reserve

Important information

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Investors should consult a financial professional before making any investment decisions. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

Should this contain any forward looking statements, understand they are not guarantees of future results. They involve risks, uncertainties, and assumptions. There can be no assurance that actual results will not differ materially from expectations.

Inflation is the rate at which the general price level for goods and services is increasing.

The Federal Open Market Committee ((FOMC)) is a 12-member committee of the Federal Reserve Board that meets regularly to set monetary policy, including the interest rates that are charged to banks.

The Federal Reserve's "dot plot" is a chart that the central bank uses to illustrate its outlook for the path of interest rates.

The policy rate is the rate that is used by central bank to implement or signal its monetary policy stance.

Tightening monetary policy includes actions by a central bank to curb inflation.

The opinions referenced above are those of the author as of Dec. 13, 2023 . These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.

Merry Pivot! Three takeaways from the Federal Reserve meeting by Invesco US

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