Townstone Financial

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 d