Yesterday (12/14/2023) was the 3rd time in a row that the Federal Reserve’s Open Market Committee didn’t raise rates. Did we just go from a “pause” to the official end of the tightening cycle? If Zach was a gambler, he thinks we did….

The Fed Funds rate at 5.50% is the highest level since 2001. There have been 11 rate increases during this cycle. What’s notable is that this “pause” that started a few meetings ago allowed the market to develop a hypothesis that the Fed could cut rates more aggressively in 2024. In late October, the 10Y Treasury yield touched 5% but has since moved below 4%!

Some further thoughts/analysis:

1. Restarting the tightening cycle could be hard for the Fed. It’s likely we’re done increasing rates and yesterday’s statement is very “dovish.”

2. Inflation hasn’t slowed to the 2% range the Fed is seeking. This will keep the market/traders/borrowers trying to interpret what “higher for longer” means in Fed-Speak.

3. Expectations of rate cuts in 2024 were already reflected by the drop in rates we’ve seen since November, but the FED’s comments yesterday has further solidified those 2024 expectations.

WATCH THIS SPACE! THINGS ARE GETTING SPICY!

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