FUNDAMENTAL REVIEW OF FINANCIAL MARKETS 14.12.2023

The Fed's December meeting:

At the December meeting, the Fed left the interest rate unchanged at 5.25%-5.5%, as predicted. However, the key moment was the announcement by the FOMC about the end of the increase cycle, the regulator's officials predict a rate cut of 0.75% in 2024. The US Central Bank also lowered its inflation forecast in the United States for 2023 to 2.8% from 3.3% and for 2024 to 2.4% from 2.5%. The US dollar came under strong selling pressure as an immediate reaction to the Fed's verdict.


The subsequent speech by Fed Chairman Jerome Powell was also more in a "dovish format" (theses):

•  inflation is still very high, although it has significantly decreased from its highs;
•  the labor market is still strong;
•  the full effect of the tightening of PREP has not yet fully manifested itself;
•  is the Fed rate close or already at its peak;
•  The Fed is ready to raise the rate even more, if necessary;
•  we are closely monitoring consumer demand as a barometer of the state of the economy;
•  It's too early to announce a soft landing, there is a possibility of a recession next year;
•  we plan to start lowering the rate BEFORE inflation returns to 2%, so as not to unnecessarily limit economic growth.

CONCLUSIONS: There is a clear shift in the Fed's position to the "dovish" side. Now the main question is: when to expect the first rate cut next year and how many there will be — so far the main scenario is 3 times 0.25% (up to 4.6%). For currencies, this is a clear curtsey in favor of buying risks and reducing the dollar.