Rate cuts are coming in 2024 - but not as soon as you think. What does it mean for markets?

On December 13th, the Federal Reserve held the United States interest rate steady at 5.25 to 5.5 percent in keeping with market expectations. However, the accompanying Federal Reserve’s summary of economic projections for the coming year showed a minimum of three rate cuts scheduled for next year – and possibly more – with a view to getting the interest rate from 5.5% percent to around 4.4 percent by December 2024.

This will be followed by even more rate cuts in 2025, 2026 and beyond, aiming to get the interest rate to about 2.5 percent – more than half what it is now.

Easy does it?

Despite how sizable the cuts sound, they appear to be being planned as far more gradual than their predecessor rate cuts were, which saw the Fed hiking rates 5.5 percentage points a whopping 11 times in 18 months, in stark contrast to the three percent in almost three years outlined yesterday by the Fed.

Markets appear to be suspicious too, in spite of the ‘higher for longer’ refrain repeated by central banks around the world for over a year now. Several analysts are anticipating less gradual, more aggressive cuts as the cost of living continues to bite for several countries.

How did the FOMC announcement affect different markets?

U.S. indices have unsurprisingly fared well since the announcement, with the Dow Jones, S&P 500 and Nasdaq all reaching their highest point in more than a year. The Dow Jones climbed to an all-time high of over 37,000.00 on December 13th, the S&P500 to 14,707.00 for the first time since the start of 2022 and Nasdaq to 14,733.96.

Read more: Oppenheimer sees 12% Upside in S&P500 after Fed Rate Decision

In the forex space, the dollar looked to the downside in the wake of the announcement, with the USD/CHF pair falling to 0.8670, while the AUD/USD reached over 0.6660. The Cable, meanwhile, has also remained buoyant in the face of the Fed, with the GBP/USD trading at 1.2650 on the morning of December 14th.

Read more: Swiss companies jump after Fed rate decision

Within the commodities space, both oil and gold prices - which can often be diametrically opposed - rejoiced against the dollar. Early morning markets on December 14th saw gold trading up almost three percent to trade above $2000 for the first time in a while. Brent crude too - which has been under pressure of late - trended upward to reach $75 per barrel.

So, interest rates are going down now?

Not quite – and there are some who think that cutting interest rates – despite the average citizen’s wallet crying out for it – is simply not going to happen anytime too soon.

“The inflation conversation is far from over,” says Allan Gray portfolio manager Thalia Petousis. She adds that: