US Fed Holds Interest Rates Steady, Signals Cut... 4.6% by End of Next Year in Dot Plot (Update)

The U.S. central bank, the Federal Reserve (Fed), kept the benchmark interest rate unchanged as expected and hinted at rate cuts next year. Through the dot plot, it lowered the year-end rate forecast for next year to 4.6% (median), signaling the possibility of at least three rate cuts.

On the 13th (local time), the Fed announced in the policy statement released after the Federal Open Market Committee (FOMC) regular meeting that it would unanimously keep the federal funds rate at 5.25?5.5%. This marks the third consecutive hold following decisions in September and November. The interest rate gap with South Korea was maintained at 2 percentage points at the upper bound.

[Image source=Reuters Yonhap News]

The FOMC stated, "Recent indicators suggest that economic activity slowed from a strong pace in the third quarter," and assessed that "inflation has eased over the past year but remains elevated." It also confirmed, "In determining the extent of any additional policy firming needed to return inflation to the 2 percent objective, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

The policy statement released that day made slight adjustments to some wording in the economic assessment, changing the phrase "strong" pace to "has slowed." Regarding inflation, the phrase "has eased over the past year" was newly added. The wording related to the extent of additional policy firming remained unchanged, but the word "any" was added before it.

The key point was the dot plot signaling rate cuts next year. Ahead of this year's final FOMC meeting, the market had shown early interest in the newly released dot plot. Considering the recent trend of easing inflation, a rate hold was expected, so attention was focused on the timing and magnitude of the next step?rate cuts?indicated by the dot plot.

In the dot plot released that day, the Fed lowered the year-end rate forecast for next year to 4.6%. This signals the possibility of a total 0.75 percentage point cut, or at least three rate cuts, over the coming year. According to the dot plot, among the 19 FOMC members, six expected the rate level next year to be between 4.5% and 4.75%, followed by five members expecting 4.75% to 5.0%.

Along with this, the Fed slightly lowered its economic outlook for next year, reducing the growth forecast from 1.5% to 1.4%. The unemployment rate forecast for next year remained unchanged at 4.1%. The core Personal Consumption Expenditures (PCE) price index inflation forecast was slightly lowered from 2.6% to 2.4%.

The market is currently awaiting the upcoming press conference by Fed Chair Jerome Powell. Chair Powell will hold the press conference starting at 2:30 p.m. Eastern Time.

[Image source=Reuters Yonhap News]

New York stock markets surged following the Fed's rate cut signal. The Dow Jones Industrial Average, composed of blue-chip stocks, rose more than 200 points from the previous close, approaching an all-time high. The S&P 500 and Nasdaq indices also rose about 0.7% each. Treasury yields declined. The 2-year Treasury yield, sensitive to monetary policy, fell more than 17 basis points to around 4.55%.