Updated Fed Dot Plot Signals 75bps of Easing in 2024

Swap rates plummet on FOMC day. The Fed’s surprisingly dovish Dot Plot and ensuing press conference saw rates decline nearly 30bps on the short end of the curve and 13+ bps on the long end. Though not as large of a factor, Producer Price Index data also contributed to the move, as most prints were below expectations and core MoM PPI was 0.0% in November. Following today’s session, rates are 25-50bps lower over the past month and as many as 16bps lower over the past 5 sessions. Meanwhile, equities soared on the day, with the DJIA ending at an all-time high after a 1.40% rise and the S&P500 and NASDAQ at year-plus long highs.

Fed surprises markets with dovish commentary. In an unexpected move, the FOMC confirmed market expectations and forecasted 75bps of easing in 2024. For the first time since March 2021, policymakers penciled in no further rate hikes per their updated dot plot. The Fed’s narrative changed, and policymakers acknowledged explicitly that inflation “has eased over the past year…” The Fed also updated several of its economic projections which showed it remains convinced a soft landing is achievable. The announcement prompted a sharp drop in UST yields that continued throughout the afternoon. Rate-cutting bets also intensified, with futures markets pricing in two additional cuts by January 2025. A side-by-side comparison of the December and November FOMC statements can be read here.  

Argentina announces 54% – peso devaluation. Argentina weakened the peso to 800 per dollar from 366.5 per dollar previously, the first “shock therapy” reform for newly inaugurated President Milei. In his announcement, Economy Minister Luis Caputo committed to a target monthly devaluation of 2%, an effort to combat their previous “addiction” to fiscal deficits. The government aims to cut spending by an equivalent of 2.9% of GDP, including reductions to energy and transport subsidies, social security, and pensions.