How have key assets reacted to FOMC’s dovish language?

Gold price, eventually, abandoned daily lows and climbed above the $2000 level. The precious metal benefited from sinking Treasury bond yields after FOMC’s statement had signaled dovishness with projected interest rate cuts in the new year.

Fed Chair, Jerome Powell, stated that the Fed is committed to achieving its mandates and is likely at or near peak for rates. Powell also mentioned that rate cuts are a topic of discussion and the appropriate time to begin easing policy.

The Fed seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run,” the FOMC said in a statement. “In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5.25% to 5.5%.”, the highest in 22 years.

Gold

FOMC decision to hold interest rates unchanged late in the New York session sent gold prices rallying higher and paved the way for monetary policy easing the following year. Since then, buyers have added to their stakes, with XAU/USD rising more than 1.80% to trade at the $2027 at the time of writing.

T-Yields

The yield on US Treasury bonds is plunging over 15 basis points at both the short and long ends of the curve, with the benchmark 10-year note currently trading at 4.02% after the Fed’s decision that set the scene for three interest rate reductions in 2024, the benchmark rate fell to 4.015%, the lowest level since August.

More than 140 basis points of rate decreases are anticipated over the course of the next year, which is twice as much as the Fed had predicted.

US Dollar

After the Federal Reserve meeting, the US Dollar experienced a significant collapse. Analysts are forecasting three rate cuts for 2024. Fed’s Powell leaned dovish. He refrained from declaring victory on inflation, but markets did.

Crude Oil

WTI is struggling to keep its price over $70 per barrel. Despite a drop of 4.259 million barrels in the week ending December 8, US crude oil reserves are still above 440 million barrels, according to the Energy Information Administration.

Although the markets continue to have doubts about OPEC’s capacity to persuade its members to follow production limitations, the organization is steadfast in its determination to lower output to raise crude oil prices. The Fed’s dovish moves have strengthened the market’s overall appetite for risk. US Crude Oil is still selling far below WTI, even though WTI has rebounded and is again back up into the $70 level.

US Stocks

US stocks jumped higher on Wednesday, hitting fresh 2023 highs, as investors dissected the Federal Reserve’s last interest rate decision of the year.

S&P 500, Dow Jones Industrial Average, and Nasdaq surged about 1.3% in the wake of FOMC decision. The Dow rose nearly 500 points, breaching 37,000 and hitting its highest close ever.

Also in the Fed’s release was the central bank’s Summary of Economic Projections, which includes policymakers’ projections for interest rates next year. The Fed now sees 75 basis points of rate cuts coming in 2024, which accounts for one more rate cut than had been projected in September.

Bitcoin

Bitcoin gained some upward momentum, picking up 0.8% in the past hour, following an announcement from Federal Reserve officials that the central bank would leave interest rates unchanged.

At the time of writing, Bitcoin is trading for$42,383.95, according to CoinGecko. Ethereum also responded positively to the news, having picked up 1% in the past hour. It’s currently changing trading for $2,234.

Powell said during a press conference that the U.S. economic recovery “has progressed more quickly than generally expected, and forecasts from FOMC participants for economic growth this year have been revised up since our September Summary of Economic Projections.”

“Even so,” Powell noted adding that “overall economic activity remains well below its level before the pandemic, and the path ahead remains highly uncertain.”