After the US Federal Reserve announced to keep its benchmark interest rates unchanged, signaling three quarter-point cuts to their benchmark interest rate in 2024, economists in India said that it would not be surprising to see other major global central banks following suit in the latter half of next year. “We believe that the Fed has now acknowledged that previous rate hikes are working into the economy and a new challenge of managing a drastic slowdown or a probable recession awaits the central bank. Our sense is that 2024 would be a good year for riskier assets overall and would not be surprised to see other major global central banks following suit in the latter half of next year,” said Manish Chowdhury, Head of Research, StoxBox.

The US Fed on Wednesday concluded its two-day Federal Open Market Committee (FOMC) meeting and maintained its benchmark interest rate for a third consecutive month. Aggressive rate increases began in March 2022 and saw the central bank hike rates 11 times, reaching a 22-year high of 5.25 per cent to 5.5 per cent. The policy rate has been on hold since July. “An early Christmas gift awaited markets as the US Federal Reserve struck the right chord with risk-driven investors following a seemingly dovish stance at its last monetary policy meeting in 2023. Following a series of rate hikes and a hawkish stance in the last 18 months, the central bank changed course as it indicated that three rate cuts looks a possibility in 2024 with further policy tightening out of context currently,” added Manish Chowdhury.

The Fed’s decision to keep its key lending rate between the current level lets policy makers determine “the extent of any additional policy firming that may be appropriate”, the US central bank said in a statement. The Fed added that inflation “has eased over the past year but remains elevated”, and would watch the economy to see if “any” additional rate hikes are needed.

Fed’s policymakers signaled the end of policy tightening and said that they envision three interest rate cuts in 2024. A near unanimous 17 of 19 Fed officials said that the policy rate will be lower by the end of 2024 than it is now.

Dr Manoranjan Sharma, Chief Economist at Infomerics Ratings, said, “There is an element of both change and continuity in US Fed’s dovish December 2023 Policy. While the bank rate was left unchanged, there are unmistakable indications that with falling inflation and decelerating macroeconomy, the upward bias on the interest rate has run its course. Infact, given the evolving growth-inflation dynamics, there could be a 75 bps cut in 2024.”

Further, Colin Shah, MD, Kama Jewelry, said that the guidance on interest rates is a gradual but steady approach to bring core inflation within the desired range of 2 per cent. “The US Fed kept interest rates on hold, but the commentary was dovish. Especially, the indication of rates cuts as early as next year and well after that. The only caveat being economic indicators on track. The guidance on interest rates is a gradual but steady approach to bring core inflation within the desired range of 2 per cent.” He further added that lower interest rates bodes well for the gold and gems and jewellery sector at large with gold making new highs. “Geopolitical tensions and a slowdown in global economic growth will boost gold prices. On the domestic front, we expect the demand trajectory to remain robust. The ongoing wedding season is expected to keep demand for gold and jewellery on the higher side,” he said.

Earlier on Tuesday, US CPI for November edged up 0.1 per cent after being unchanged in October. In the 12 months through November, the CPI increased 3.1 per cent after rising 3.2 per cent in October. “Inflation came down in 2023 much faster than anyone expected. The US inflation report was largely neutral. However, since market participants were hoping for an even more dovish report, this report may be considered negative in the near term for global equities. Indian equities are also looking tired and may face further correction over next few days. Precious metals are in the bottoming out process and may climb again after a brief setback from today’s report,” said Amit Goel, Co-founder & Chief Global Strategist at Pace 360.

The next US Fed FOMC meeting dates are January 30–31.