15.12.2023 –It has done it again: for the third time in a row, the Federal Reserve has left interest rates unchanged. The day after, the guesswork is in full swing: have we reached the interest rate plateau? And will interest rates go downhill again from now on? In fact, there is a lot to be said in favour of this. Because the Fed delivered a real Dovish surprise.
Many now see the renewed hesitation as clear evidence that the Fed will achieve a soft landing. In other words, the economy will not be stalled and inflation will come down slowly. This would mean that interest rates could slowly fall again – which would give a new boost to high-tech shares in particular. Or, at the very least, it means that there will be no further interest rate hike. Which would also be moderately bullish for the stock market. In any case, the Nasdaq 100 has already made a little leap for joy – here is the four-hour chart.
Quelle: Bernstein Bank GmbH
These are the facts: The Fed Funds Rate remains in the range of 5.25 to 5.5 per cent, the rate at which commercial banks can borrow central bank money. This is still the highest rate in more than two decades. Since March 2022, the central bank has raised interest rates by more than five percentage points in the fight against high consumer prices.
Bullish signals
Ultimately, however, the facts currently outweigh the bulls: The Fed’s new economic forecast indicates that interest rates will be lowered again next year. Although inflation is still higher than the Fed’s target, it is weakening. The US Department of Labour announced on Tuesday that consumer prices had risen by 3.1 per cent compared to the same month last year. In October, the rate had been 3.2 per cent. The Fed only wants inflation of 2 per cent.
The central bank is now expecting a slightly lower inflation rate than before. The inflation rate is expected to average 2.4 per cent in the coming year, compared to 2.5 per cent in September. For 2023, the Fed is forecasting an inflation rate of 2.8 per cent, compared to 3.3 per cent in September.
Soft landing
The Fed also does not see the economy overheating. The Fed is now forecasting slightly lower economic growth for the coming year than was assumed three months ago. The gross domestic product (GDP) of the world’s largest economy will therefore grow by 1.4 per cent in 2024. This would be 0.1 percentage points less than forecast in September. The central bank has now even tentatively hinted at an interest rate cut. The Fed now expects an average key interest rate of 4.6 per cent for next year, compared to 5.1 per cent in September.
The upshot of all this is that the Fed has shown itself to be far more dovish than most experts had expected, at least according to the blogs “ZeroHedge” and “Newsquawk”. As the European Central Bank acted similarly today, there is no danger of capital flowing out of Europe. The ingredients for a continuation of the bull market are therefore in place. We are excited to see what happens next and wish you successful trades and investments!
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