Fed Funds Rates Unchanged, 2023 GDP Growth Estimate Revised Higher

Brian Turner
13 Dec, 2023
New York City

Stocks on Wall Street surged after the Federal Reserve left rates unchanged and signaled multiple rate cuts in 2024.

Benchmark indexes rebounded after the Federal Reserve left the fed funds rate range unchanged between 5.25% and 5.50%.

Policymakers noted that economic growth has slowed, job growth has moderated but remains strong, and inflation is on a downward trajectory but remains elevated.

The 22-year high rates were left unchanged for the third time in a row, and policymakers also laid the groundwork for rate cuts in 2024 and beyond.

Eight policymakers estimated fewer than three quarter percentage point rate cuts in 2024, while five projected a larger number of rate cuts next year.

Fed funds rates are expected to decline to 5.4% at the end of 2023 from the September projection of 5.6%, and ease to 4.6% at the end of 2024 from 5.1% respectively. 

The central bank, in its 'dot plot,' also revised its higher GDP growth estimate by 50 basis points to 2.6% in 2023, but lowered its estimate to 1.4% from 1.5% in 2024.

The projection for the unemployment rate was held steady at 3.8% in 2023 and 4.1% in 2024.

The Personal Consumption Expenditure, or PCE, inflation estimate for 2023 was revised lower to 2.8% from 3.3% estimated in September and for 2024 to 2.4% from 2.5%, respectively.

The two latest inflation reports showed a mixed picture on the inflation front. Consumer price inflation in November eased to 3.1%, but the core rate of inflation held steady at 4.0%.

The latest update on producer prices showed that wholesale inflation held steady in November.

Investors also reviewed the persistent decline in energy prices, and crude oil prices extended their weekly decline to the eighth week in a row.

Investors have bid up stocks for the last six consecutive weeks in the belief that interest rates are more likely to decline.

But the Federal Reserve may keep higher rates for longer before strong evidence emerges that inflation is on a sustainable downward path to the Fed's target rate of 2%.