The Fed holds rates steady, indicates three rate cuts in 2024


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Note: Figures recorded at 7:45am AEDT. The closing figures and video recording will be available at 9:00am AEDT.

The Dow Jones industrial Average jumped to a record Wednesday as the Federal Reserve signalled it would cut rates several times next year, satisfying investors who hoped the central bank would finally start to acknowledge the slowing trend of inflation with a less-aggressive monetary stance.

The 30-stock Dow added 415 points, or 1.1%. At its high of the day, the Dow touched 37,057.81 to surpass 37,000 for the first time and exceed its previous all-time high in January of 2022. The S&P 500 jumped 1% with bank and real estate shares leading the way, while the Nasdaq Composite climbed 1%.

The central bank held the benchmark overnight borrowing rate steady in the 5.25% to 5.5% range as expected, but more importantly it forecast three rate cuts in 2024, which was more than it had previously indicated. Investors have been increasingly hoping for the Fed to give a clearer signal that it would start cutting rates next year with recent inflation data easing.

The Fed’s meeting statement acknowledged that inflation “has eased” over the past year and the central bank formally lowered its inflation forecast for 2024, seeing a 2.4% rate down from 2.6%.

The 30-stock Dow crosses above 37,000 Wednesday.

The Dow retreated from previous record levels in early 2022 as the Fed embarked on its policy tightening campaign to fend off inflation. Last year, the 30-stock benchmark dropped 8.8% — its biggest annual decline since 2008.

Since the start of the fourth-quarter however, the Dow has surged more than 10% as hope of easier policy grew.

The gains Wednesday brought the Dow’s year-to-date rise to 11.6%. The broader market has seen even bigger gains, with the S&P 500 up 22% so far in 2023. The Nasdaq Composite is up 40% year-to-date. The S&P 500 sits about 2% from a record.

The market got more encouraging inflation data earlier on Monday, with the producer price index unchanged in November. That follows Tuesday’s consumer price index release, which showed prices slowing to a 3.1% annual rate last month.

The 10-year Treasury yield, a benchmark for mortgage rates and other loans, dropped to 4.03% following the Fed’s rate forecast release, the lowest levels since August.

Shares of Bank of America and Wells Fargo, banks who stand to benefit if the Fed orchestrates a so-called soft landing, each gained more than 2% Wednesday. Home Depot, whose sales could be boosted by a revival in the housing market, gained nearly 3%.

Turning to commodities, oil prices increased due to a significant withdrawal of 4.3 million barrels from U.S. crude inventories, surpassing expectations, and in response to the Federal Reserve's announcement of planned rate cuts in 2024.

Brent crude rose by $1.02 to settle at $74.26 per barrel, while U.S. West Texas Intermediate crude gained 86 cents to settle at $69.47 per barrel. The Federal Reserve's decision to hold rates steady and signal three rate cuts in 2024 alleviated concerns about higher interest rates affecting oil demand and prices.
 
Figures around the globe

European markets closed mixed. London’s FTSE added 0.08 per cent, Frankfurt lost 0.15 per cent, and Paris closed 0.16 per cent lower.

Turning to Asian markets, Tokyo’s Nikkei added 0.25 per cent, Hong Kong’s Hang Seng fell 0.89 per cent while China’s Shanghai Composite closed 1.15 per cent lower.

The Australian share market closed 0.31 per cent higher at 7,257.79.

Ex-dividends
Metcash Limited (ASX:MTS) is paying 11 cents fully franked
Plato Inc Max Ltd (ASX:PL8) is paying 0.55 cents fully franked
Wcm Global Growth (ASX:WQG) is paying 1.68 cents fully franked

Dividends payable
Graincorp Ltd (ASX:GNC)
ResMed Inc (ASX:RMD)
ALS Ltd (ASX:ALQ)
Stanmore Resources Ltd (ASX:SMR)
Civmec Ltd (ASX:CVL)

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.

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