Dow Jones Hits an All-Time High After Federal Reserve Signals Interest Rate Cuts Next Year

By Jace Dela Cruz

Dec 14 2023, 02:01 AM EST

Amid a surge in market trading activity on Wednesday, the Dow Jones Industrial Average reached a new all-time high, breaching the 37,000 mark and setting both intraday and closing records.

According to Business Insider, this momentum came in response to a dovish signal from the Federal Reserve, which kept interest rates steady but presented revised projections hinting at an anticipated 75 basis points of rate cuts in 2024, surpassing previous indications.

Dow Jones Hits an All-Time High After Federal Reserve Signals Interest Rate Cuts Next Year — After the Federal Reserve signaled it could start cutting interest rates next year if inflation continues to fall, the Dow Jones Industrial Average closed at a new record high. Spencer Platt/Getty Images

Dow Jones Peaks At 37,094.85

The Dow Jones' new intraday record peaked at 37,094.85 while also topping the previous closing high of 36,799.65 set on January 4, 2022.

The Federal Reserve's updated guidance sparked a significant reaction in the bond market, with the yield on the 10-year US Treasury plummeting more than 17 basis points to 4.03%.

On Wednesday, the US central bank kept rates unchanged again at 5.25%-5.5%, a 22-year high. While adopting a cautious tone, Federal Reserve Chair Jerome Powell acknowledged concerns about persistently high inflation and the uncertainty surrounding the path forward.

He noted that inflation "is still too high and ongoing progress in bringing it down is not assured, and the path forward is uncertain." Despite this caution, market expectations for an interest rate cut in early 2024 have accelerated.

Investors are currently factoring in a 92% probability of experiencing at least one rate cut in the first quarter of the upcoming year, marking a significant rise from the 34% likelihood estimated just a month ago.

Will the Federal Reserve Start Interest Rate Cuts in June 2024?

In related news, a recent survey showed a growing expectation that the Federal Reserve will initiate rate cuts in June 2024, with more than half of its respondents anticipating a reduction by that month and rising to 69% by July.

However, the CNBC Fed Survey respondents, which include economists, strategists, and analysts, do not expect rate cuts next year to be aggressive or as quick as markets have priced in.

Overall, the survey noted that the average respondent predicts approximately 85 basis points of cuts next year, equating to one 25 basis point trim a quarter. However, this falls short of the 120 basis points built into futures markets.