When will interest rates fall?
Key points
- November's FOMC meeting left the Fed Funds Target Rate unchanged at 5.25 - 5.50% for the second consecutive time
- There is still a 20% probability* of another rate hike at December's FOMC meeting
- By the end of 2024, markets are predicting rates to be around 1% lower*
Mixed signals from interest rate projections
Jerome Powell and the FOMC brings similar messaging of a resilient US economy and uncertain future for interest rates. At present, the Fed anticipates full effects from the 5.5% Overnight rate are yet to be felt, and continual monitoring of employment and inflation data is necessary for navigating a soft landing from high inflation.
Traders, however, are left unsure of when rates will lower or if there is a chance of rising higher. For the next FOMC meeting, markets are still pricing in a 20% chance* of an additional 25 bps rate hike as Powell did not rule out the possibility - contingent on employment data to come. Though over a longer horizon, traders are expecting rates to lower in December 2024 by about 1%.*
Additional factors observed in the current economic landscape include decade-long highs in Treasury yields and a strong US dollar. In principle, US dollar markets will benefit from higher-for-longer rates in the US as they have so far.
*Projections based on the CME's FedWatch tool
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 tastyfx. Many traders also watch major forex pairs like EUR/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 tastyfx’s YouTube channel. 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.
What is the Overnight Rate?
The Overnight Rate, or Federal Funds Rate, is the interest rate set by the Federal Reserve to target monetary policy. This rate is used by large banks each night as a cost to borrow into the next day.
Why do interest rates matter to forex traders?
Interest rates impact forex markets because they determine the cost to hold or borrow currencies overnight. The differential between interest rates can cause greater demand for a certain currency over the other.
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