Fed policymakers held overnight interest rates unchanged at 5.25% - 5.50%, the fourth consecutive hold after 18 months of hikes.
  • It appears that inflation has settled into a tolerable range, with 3-month and 6-month core PCE trending at a 2.3% - 2.4% annual rate
  • Short term markets have been running ahead of Fed rhetoric, though FOMC members are clearly leaning towards possible cuts
  • Dot plot accompanying today’s FOMC is net dovish relative to September, though dispersion of rate expectations is very wide

The Federal Reserve Open Market Committee left its target for overnight interest rates unchanged at a range of 5.25% - 5.50%, their fourth unchanged decision after more than a year of unusually rapid hikes. December FOMCs always seem to bring to mind the 2018 meeting at which Fed Chair Jay Powell donned his Grinch hat, uttered the words “autopilot,” and tanked the financial markets just in time for the holidays. Powell probably remembers that experience and the subsequent walk back too well to repeat it again. More recently, Powell noted that the risks are roughly balanced for the Fed’s next move, and financial markets took that statement as a cue to begin pricing in interest rate cuts in 2024—100 bps of them at present. We would caution against taking that pricing as gospel, and even Fed officials have highlighted that we’re a long way from cuts. But momentum-based trading programs are exaggerating the market-implied probabilities of rate cuts by bidding up short-term interest rate futures, and few are brave enough to fight back against that trend this close to year-end. A mid-year “normalization” rate cut is certainly possible, and today’s FOMC results would suggest several are coming.

Continue to read full PDF

This report is produced by the Janney Investment Strategy Group (ISG). It is the intellectual property of Janney Montgomery Scott LLC (Janney) and may not be reproduced, distributed, or published by any person for any purpose without Janney’s express prior written consent. This report is to be used for informational purposes only. In no event should it be construed as a solicitation or offer to purchase or sell a security. The information presented herein is taken from sources believed to be reliable but is not guaranteed by Janney as to accuracy or completeness. Any issue named or rates mentioned are used for illustrative purposes only and may not represent the specific features or securities available at a given time. Preliminary Official Statements, Final Official Statements, or Prospectuses for any new issues mentioned herein are available upon request. The value of and income from investments may vary because of changes in interest rates, foreign exchange rates, securities prices, market indexes, as well as operational or financial conditions of issuers or other factors. Past performance is not necessarily a guide to future performance. For investment advice specific to your situation, or for additional information on this or other topics, please contact your Janney FA and/or your tax or legal advisor.

About the author

Guy LeBas

Director, Custom Fixed Income Solutions

Read more from Guy LeBas

For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

To learn about the professional background, business practices, and conduct of FINRA member firms or their financial professionals, visit FINRA’s BrokerCheck website: http://brokercheck.finra.org/