Day: 14 December 2023

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Bank of England holds interest rate at 5.25%

Bank of England

UK interest rates have been held at 5.25%. This is the third time in a row the Bank of England has opted to hold rates the same.

The decision, which was widely expected by financial markets, means borrowing costs will remain at their highest level for 15 years.

the Bank of England’s Monetary Policy Committee (MPC) voted 6-3 to keep rates at a 15-year high.

There was reportedly no discussion of cutting interest rates, and it’s still concerned that price rises might be stickier in the UK economy than in the U.S. or Eurozone.

The U.S. yesterday, 13th December 2023 indicated that 2024 could see three interest rate cuts. No such indication was forthcoming from the UK.

UK, U.S. and EU interest rates

UK, U.S. and EU interest rates
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Dow Jones Industrial Average sets new all-time high

Dow Jones Index

The Dow Jones Industrial Average (DJIA) hit a new all-time high, on 13th December 2023. It closed at 36799 surpassing its previous record of 36585points that it had set on 4th January 2022. This was the fourth consecutive record close for the index.

Record high

The Dow’s record high was driven primarily by the Fed holding the interest rate at 5.5% and signalling that it expects to cut interest rates three times in 2024 to stimulate growth and inflation.

Other factors such as strong corporate earnings, optimism about the economic recovery from the COVID-19 pandemic, the emergence of AI and its effect on the economy and for a U.S. ‘soft landing’ all played their part.

Dow a bellwether for the U.S. economy

The Dow is not only a measure of stock market performance, but also a reflection of the overall health and confidence of the U.S. economy. It is often used as a benchmark for investors and analysts to evaluate their portfolios and strategies. The Dow is also closely watched by policymakers and media outlets as a measure of public sentiment and expectations.

Dow hits new all-time high

Dow hits new all-time high

The Dow, in intraday trading, continued to climb to over 37200.

More to come?

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Fed feeds the fund rate fever

Fed fund rate

Fed holds U.S. rates at 5.5%, indicates three cuts coming in 2024

The Federal Reserve on Wednesday 13th December 2023 held its key interest rate steady for the third time in a row and set the scene for multiple rate cuts in 2024 and 2025.

With inflation easing and the economy holding up policymakers Federal Open Market Committee policymakers voted unanimously to keep the rate in a range between 5.25%-5.5%. 

Possible three Fed rate cuts pencilled in for 2024

Along with the decision to stay on hold, the FOMC pencilled in at least three rate cuts in 2024, assuming quarter percentage point increments. That’s less than market pricing of four, but more aggressive than what officials had previously indicated. 

Markets had widely anticipated the status quo decision which could end a cycle that has seen 11 hikes, pushing the interest rate to its highest level in more than 22 years. There was uncertainty, though, about how ambitious the FOMC might be regarding policy easing. 

The FOMC’s so called ‘dot plot’ of individual members’ expectations indicate another four cuts in 2025, or a full 1%. Three more reductions in 2026 would take the Fed rate down to between 2%-2.25%, close to the longer-term outlook, though there were considerable difference in the estimates for the final two years. 

Dow at new all-time high!

Following the Fed update the Dow Jones Industrial Average jumped more than 400 points, surpassing 37,000 for the first time creating a new Dow all-time high.