Investment Institute
Weekly Market Update

Take Two: Fed and ECB hold rates; COP28 deal agreed

  • 18 December 2023 (3 min read)

What do you need to know?

The US Federal Reserve (Fed) kept interest rates at their 22-year high at between 5.25% and 5.50% by unanimous decision at its December meeting, in line with market expectations. The Fed acknowledged the softer backdrop, stating “growth of economic activity has slowed from its strong pace in the third quarter”. However, Fed projections showed the majority of its rate-setting Federal Open Market Committee expect three rate cuts in 2024 while Fed Chair Jerome Powell said rates were “likely at or near” their peak – a message US markets welcomed as the Dow Jones index closed at a record high.


Around the world

The European Central Bank (ECB) also held fast and left its key interest rate unchanged at 4.0%. Policymakers acknowledged that while inflation eased to 2.4% in November, it may increase in the near term, before returning to its 2% target. As expected, it cut its inflation forecasts, and anticipates inflation will have averaged 5.4% in 2023, before dropping to 2.7% in 2024, and 2.1% in 2025. Elsewhere, the Bank of England kept interest rates at their 15-year high of 5.25% and indicated they will remain at these levels for an extended period, despite inflation easing to 4.6% in October.

Figure in focus: 50%

Argentina’s new government has devalued its currency, the peso, by more than 50% in a bid to tackle its economic crisis. The South American country is struggling with, among other factors, huge public debt and soaring inflation – with its annual rate at some 150%. Deep spending cuts were also announced, including a reduction in fuel subsidies and a freeze on some major government contracts. The move was welcomed by the International Monetary Fund - which Argentina owes US$44bn – as its managing director Kristalina Georgieva said it was "an important step toward restoring stability and rebuilding the country's economic potential”.


Words of wisdom: “Transitioning away”

Following prolonged negotiations at the COP28 climate summit, nearly 200 countries approved a plan explicitly calling for the “transitioning away from fossil fuels”, for the very first time in the events near 30-year history. The text called on nations to transition “in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science”. Notably however, it did not say to “phase them out”, which many were calling for. The latest agreement follows an initial draft which was widely criticised and described as “grossly insufficient”.

What’s coming up?

Monday sees Germany publish its Ifo Business Climate index for December, a closely watched indicator of the country’s economic health. On Tuesday the Bank of Japan meets to set interest rates and the Eurozone announces its final inflation numbers for November. The UK follows with its own inflation data on Wednesday, while on Thursday the US issues a final estimate for third quarter (Q3) GDP growth. On Friday Japan updates on inflation and the UK publishes final Q3 GDP growth numbers. 

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