The Federal Reserve Turns Dovish

The Federal Reserve has been hawkish for much of 2022 and 2023, having increased the federal funds rate 11 times since March 2022 in its attempt to rein in inflation. This brings the federal funds rate to 5.25% to 5.50%. However, when inflation cooled in the latter part of 2023, the central bank stopped raising rates and turned more dovish.
For example, a well-known hawk on the Federal Reserve’s Board of Governors – Christopher Waller – recently provided dovish comments. He stated, “I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%.” And he even noted that if inflation continues to cool off for the next several months, then the Fed could cut key interest rates.
In addition, Fed officials say that the Fed does not want to overshoot by raising key interest rates higher and subsequently hinder economic growth. Fed Chair Jerome Powell also recently implied, at the December Federal Open Market Committee (FOMC) meeting, that the “dot plot” would be updated and likely signal no more key interest rate hikes.
Given the dovish Federal Reserve, Wall Street is now betting that the central bank will start lowering rates next year.