The Fed is done raising interest rates. Now what?
All signs from recent economic data point to the end of interest rate hikes in the US. With a new year approaching, how fast will the Fed cut interest rates and where could the economy be headed?
Key points
- Markets are not predicting another rate hike from the Fed this year or next*
- Inflation and employment are not far from the Fed's target rates
- Most futures traders believe rates will be under 5% by the end of 2024*
How long will rates stay at 5.5%?
After more softening employment data and a hold from the FOMC this week, 5.5% looks to be the ceiling for overnight interest rates going forward. With rate hikes out of the question, traders will now begin to focus on when the first rate cut since 2020 will occur.
Friday morning unemployment came in at 3.9%, only 0.1% off of the Fed's desired rate. The question for the start of rate cuts will likely rely soley on a slide in inflation. After steady progress in the first half of the year, inflation has stalled above 3.5%. An indication of a sustained fall towards 2% could lead the Fed to begin cutting rates. Current predictions for December 2024 from CME futures traders anticipate a drop in interest rates around 75 - 100 bps lower.
All else equal, such a move would likely send US dollar lower from its impressive 2023 run against most major currencies.
*Projections based on the CME's FedWatch tool for 12/18/2024
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like IG. USD pairs can be found in IG's platform under the 'USD Pairs' pairs tab. Many traders also watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like IG’s Trading Academy. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.
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