GRR-RATE NEWS!

Dow record as Fed pauses, talks cuts

The question it of when will appropriate become dialing back to begin of policy the amount begins restraint: that come into view. to — Fed Chair Jerome Powell

The Dow Jones Industrial Average blew past its alltime record close Wednesday, surpassing 37,000, within hours of the Federal Reserve’s decision to keep interest rates steady — and a forecast by the central bankers to possibly cut rates three times next year.

Fed Chair Jerome Powell said the historic tightening of monetary policy is probably over, with a discussion of cuts in borrowing costs coming “into view.”

Powell’s remark, made in a press conference following the end of the central bank’s final policy meeting of the year, dovetailed with projections from all 19 policymakers that showed nearunanimity that borrowing costs would fall in 2024, many of them by a substantial margin.

“You see that people are not writing down rate hikes: That’s us thinking that we have done enough,” Powell said.

While Fed policymakers did not want to take another rate hike off the table, it is no longer the central bank’s “base case,” he said.

The timing of rate cuts “is really the next question: That’s what people are thinking about, and talking about,” he said, with a “general expectation” that future meetings would feature such a discussion. The next two-day meeting begins Jan. 31.

‘Dialing back’

Though it is too early to declare that the Fed has achieved its stated goal of a “soft landing,” Powell said, “the question of when will it become appropriate to begin dialing back the amount of policy restraint: That begins to come into view.”

The Fed’s actions and Powell’s comments sparked a rally on Wall Street. The Dow, which was flat before the 2 p.m. announcement, jumped 512 points to close at 37,090, topping its previous all-time high of 36,952 set in January 2022, two months before the Fed began its historic tightening.

Powell said he couldn’t definitively rule out higher rates at this point, even as officials looked toward a lower policy rate.

“While we believe our policy rate is at or near its peak for the tightening cycle, the economy has surprised forecasters,” Powell said.

Because of the unpredictable nature of the economy, he said that while Fed officials “do not view it as likely to be appropriate to raise interest rates further, neither do they want to take the possibility off the table” if it’s needed.

The newest projections also showed policymakers see the risks to inflation and employment — the two planks of the Fed’s dual mandate — were coming into better balance.

On Tuesday, the Consumer Price Index — which tracks changes in the costs of everyday goods and services — showed inflation was 3.1% in November.

Though it’s a tick lower than October’s 3.2% reading, it nevertheless remains well above the Fed’s 2% inflation target — a rate Powell said Wednesday likely won’t be achieved until 2026.

Attention now turns to how soon the Fed will implement its first rate cut.

Bankrate Chief Financial

Analyst Greg McBride said, “Nothing in the economy suggests the Fed needs to be in a hurry to cut interest rates in 2024.”

“In a soft-landing scenario, the Fed only needs to trim rates in response to further easing in inflation pressures, just enough to maintain tight policy without loosening it,” he added.