The Federal Reserve System (#Fed ) in its recent meeting, held on Wednesday and being the last of this year, left interest rates unchanged at a level between 5.25 and 5.5 percent. Central bank officials indicated that a rate cut is expected next year, forecasting rates to be around 4.6 percent.

Fed's "Dot Plot" and Future Trends

In its policy statement, the Fed also presented updated economic forecasts as part of its Summary of Economic Projections (SEP), including the so-called "dot plot." This plot illustrates the expectations of policymakers regarding the future direction of interest rates.

 Interest Rate Predictions

According to the Fed's data, the federal funds rate in 2024 is expected to peak at a maximum of 4.6 percent, lower than the previous estimate of 5.1 percent from last September. This implies that the Fed plans to cut rates by 0.75 percentage points next year. Over the past year, the Fed has made rate adjustments in 25-basis-point increments, indicating a plan for three rate cuts in 2024.

 Market Reaction to SEP

Immediately after the SEP was published, the markets began to align with the nearly 60% probability that the Fed would start reducing rates as early as its March meeting.

Forecasts for 2024

Of the 17 Fed officials, the majority predicts a rate cut next year, with five of them expecting a decline of more than 0.75 percentage points. Only two officials do not expect any change, but none of them predicts an increase in rates for 2024.

 Inflation Expectations

According to the SEP, inflation next year is expected to peak at 2.4 percent, followed by slightly lower figures of 2.2 percent in 2025 and 2.0 percent in 2026.

 Unemployment in the Coming Years

Fed officials anticipate that the unemployment rate in 2024 will rise to 4.1 percent, in line with their previous estimates. This rate is expected to remain stable until 2026.

 Economic Growth

The Fed predicts a slowdown in economic growth, with the economy expected to grow by 1.4 percent next year, then slightly accelerating to 1.8 percent in 2025 and 1.9 percent in 2026.

 Conclusion After the Fed Meeting

Stock markets experienced a significant increase following the Fed's Wednesday meeting. On the other hand, yields on ten-year government bonds (^TNX) fell by about 11 basis points, trading around 4.1 percent.

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