Powell Signals Peak Interest Rates, Foresees Cuts In 2024: Markets Rally, Traders Extend Lower Rate Bets
Portfolio Pulse from Piero Cingari
Federal Reserve Chair Jerome Powell indicated that interest rates are likely at their peak and may see cuts in 2024. The Fed left rates unchanged in its last 2023 meeting, with the median projection for the federal funds rate at 4.6% for the end of 2024, and further reductions to 3.6% by 2025 and 2.9% by 2026. Powell highlighted progress in controlling inflation and economic growth but remained cautious, stating it's too early to declare victory over inflation. Markets reacted by increasing bets on a rate cut by March 2024, with gold, U.S. 20+ Year Treasuries, and stocks rallying, while the U.S. dollar dropped. The SPDR Dow Jones Industrial Average ETF (DIA) reached all-time highs.
December 13, 2023 | 8:35 pm
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POSITIVE IMPACT
The SPDR Dow Jones Industrial Average ETF (DIA) reached all-time highs after Powell's announcement, as the prospect of lower interest rates can stimulate economic growth and corporate earnings.
The Dow Jones index often reacts positively to dovish monetary policy, as lower interest rates can lead to increased investment and higher corporate profits. DIA's rise to all-time highs reflects this optimism.
CONFIDENCE 90
IMPORTANCE 80
RELEVANCE 90
POSITIVE IMPACT
The SPDR Gold Trust (GLD) rallied following Powell's comments on potential interest rate cuts, as lower rates tend to decrease the opportunity cost of holding non-yielding assets like gold.
Gold typically benefits from lower interest rates, which reduce the relative cost of holding gold compared to interest-bearing assets. Powell's dovish stance is likely to support gold prices in the short term.
CONFIDENCE 85
IMPORTANCE 75
RELEVANCE 80
POSITIVE IMPACT
U.S. 20+ Year Treasuries, tracked by TLT, saw increased momentum following the Fed's unchanged rate decision and Powell's dovish comments, as lower rates can boost bond prices.
Long-term Treasury prices tend to rise when interest rates are expected to fall, as existing bonds with higher yields become more valuable. The market's anticipation of rate cuts is positive for TLT.
CONFIDENCE 85
IMPORTANCE 70
RELEVANCE 80