The U.S. Federal Reserve announced its interest rate decision in its recent meeting on 20th September 23. The central bank kept the interest rates stays pat on the current interest rate scenario and announced the projections and the future trajectory of interest rates. The highlights of the meeting are as follows:
- The dollar reached a six-month high against a basket of currencies. U.S. Treasury yields surged to multi-year highs after the Federal Reserve’s announcement.
- Fed maintained rates at 5.25%-5.5%, but dot-plot projections hinted at one more hike this year and two cuts in 2024 taking a peak rate of 5.6%
- The 10-year benchmark yield hit a 15-year high, and 2-year yields reached levels not seen since early 2001.
- Stubborn U.S. inflation, a strong labor market, and a resilient economy provide room for higher rates.
- No rate cuts are expected in the first half of the year 2024
- Fed doubled the GDP growth rate projection for this year from 1% to 2.1%
- U.S. rates are expected to be at 5.1% next year, with only two rate cuts in 2024, contrary to earlier expectations.
- The Fed anticipates the U.S. economy will avoid a recession, but there are upside risks to inflation.
- Despite the hawkish tone, Fed Funds future rates indicate a 30% chance of rate hikes in November and December, dependent on inflation trends.
- Debt will remain more expensive for an extended period.
To summarize, the fed outlook remains data dependent and would change as per evolving conditions just as it did this time. USD to hold gains until there are clear signals of any major economic slowdown or stress in the financial system