 "Photo: Bloomberg")
US Fed meeting key takaways: The US Federal Reserve's forecast of interest rate cuts in 2024, a first since May 2021, unleashed bulls across global equity markets.
On Dalal Street, the S&P BSE Sensex zoomed over 1,000 points to hit a record high of 70,603, while the Nifty50 clocked a new lifetime summit of 21,211.
In the broader markets, the BSE MidCap index touched a record high of 36,264 (up 0.8 per cent), and the BSE SmallCap notched a new summit of 41,983.61 (up 0.6 per cent).
What did the US Fed do?
The Federal Reserve held interest rates steady in the range of 5.25 per cent to 5.5 per cent on Wednesday, and signaled in new economic projections that the historic tightening of US monetary policy engineered over the last two years is at an end and lower borrowing costs are coming in 2024.
A near unanimous 17 of 19 Fed officials project that the policy rate will be lower by the end of 2024 than it is now - with the median projection showing the rate falling three-quarters of a percentage point from the current 5.25 per cent-5.50 per cent range. No officials see rates higher by the end of next year. READ MORE
Key Takeaways from the US Federal Reserve December Policy
Dovish pivot
The Federal Open Market Committee (FOMC) statement eased back the language on further hikes with the dots now showing three rate cuts next year.
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While Jerome Powell, chairman, FOMC, maintained that the Committee is not yet convinced the fight against inflation is over, he conceded that the conversation will soon transition to discussing less restrictive policy.
Future discussions to focus on rate cuts
Less than two weeks after saying it would be "premature" to speculate on the timing of rate cuts, Powell said FOMC officials were starting to turn to that question.
"That begins to come into view and is clearly a topic of discussion out in the world and also a discussion for us at our meeting today," Powell said.
Downward revision in inflation forecast
The US Fed lowered its inflation forecast, and expects core inflation to ease to 3.2 per cent this year compared to September projections of 3.7 per cent. They also see core inflation at 2.4 per cent at the end of next year, down from their September expectation of 2.6 per cent.
US economy may see 'soft landing'
The FOMC has revised its 2023 real gross domestic product (GDP) growth forecast to 2.6 per cent, up from 2.1 per cent predicted earlier.
While the 2024 GDP projection has been revised to 1.4 per cent from 1.5 per cent, the Committee sees GDP growth rising to 1.9 per cent from 1.8 per cent forecasted earlier.
The Committee has maintained its forecasts for unemployement projections.
Labour market in 'sweet spot'
In his statement, Fed Chair Powell said the development of the labor market has been very positive.
"It's been a good time for workers to find jobs and get solid wage increases. The era of this frantic labor shortage is behind us. Wages are still running higher than what would be consistent with 2 per cent inflation—the Fed’s target inflation level—over a long period of time, but have gradually been cooling off," he added.
The US economy added 199,000 jobs in November, exceeding economists' expectations of 190,000 new jobs. While US wages were up 4 per cent year-on-year, the unemployment rate ticked lower to 3.7 per cent in November and remains historically low.
