Merry Pivot! Three takeaways from the Federal Reserve meeting

As expected, the Federal Reserve (Fed) kept rates steady for the third month in a row yesterday. Here are my three key takeaways from the dot plot and Fed Chair Jay Powell’s press conference¹:

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!

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