2023-12-13 23:46:05
The television announcement by the Chairman of the US Federal Reserve, Jerome Powell, broadcast on the floor of the New York Stock Exchange, December 13, 2023. BRENDAN MCDERMID / REUTERS
The cycle of rising rates is over, time for falling. This is what emerged from the latest meeting of the monetary policy committee of the American central bank. The Federal Reserve, the Fed, chaired by Jerome Powell, left its key rates unchanged on Wednesday, December 13, for the third consecutive meeting.
They have been above 5.25% since the end of July compared to almost zero in March 2022. Above all, the members of the committee, who revealed their forecasts for 2024, are now counting on three reductions of a quarter of a point in 2024. Short-term rates would thus reach 4.6%, half a point less than in the last projections made in September. The decline phenomenon would accelerate in 2025 with four additional declines, to 3.6%, before seeing the rate fall to 2.9% at the end of 2026.
These announcements were greeted with fireworks on Wall Street. Ten-year interest rates fell suddenly, touching the 4% mark for a few moments during the session. A complete reversal with the month of October when long-term rates rose above 5% and reached their highest level since 2007. Lower rates mean more attractive stocks and lower financing costs for companies.
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The stock market is no longer driven by the actions of the “magnificent seven”
As a result, the three Wall Street indices increased by around 1.4%. The Dow Jones index – which is little watched due to its low representativeness – has crossed its historic record by breaking the 37,000 point mark, while the S&P 500 which represents large American companies and the technology-rich Nasdaq have broke their record for the year. Since January 1, their respective rebound is 22% and 40% and the two indices are only 3% and 9% from their historical records.
The new thing is that the stock market is no longer driven by the stocks that operators have nicknamed the magnificent seven (Apple, Microsoft, Amazon, Meta, Alphabet, Telsa, Nvidia) boosted by hopes in artificial intelligence but by the set of values. Small businesses and those financed by debt – such as infrastructure or renewable energies – are experiencing a spectacular rebound following a catastrophic start to the year.
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Explanation of this optimism, the reduction in inflation and the lull on the job market. On the inflation side, price increases fell in November to 3.1% year-on-year and 4% if we exclude energy and food. This is still a little too high, especially since the drop in prices was dragged down by the fall in oil prices. But economic players anticipate a drop in inflation, which is excellent for avoiding a spiral of wage inflation.
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