After the 2008 Great Financial Crisis (GFC) interest rates around the world were slashed.

Through a series of rate cuts, the band that the Federal Reserve used was brought down to 0 - 0.25%

In Japan and some European countries, the interest rates even went negative. Their sovereign bonds were issued with negative rates and depositors with large deposits also suffered negative rates.

At the time of the GFC, it was necessary to slash interest rates to very low to prevent the financial system from collapsing. After the collapse had been averted, and the financial system stabilized, interest rates should have been gradually increased.

This was not done and interest rates were kept low for over a decade. In the USA, the Feds did not start to increase theirv interest rate until Mar 2022.

But once the Feds started to increase interest rates, they did so at at an unprecedented rate of increase. Through 11 rate hikes from March 2022 to July 2023 in a space of 17 months, the rate was increased by 5.25%

Although the current interest rates are lower than what the then Fed chair, Paul Volker, had the rate of increase in 2022 and 2023 was greater than any time in history. It took the Feds band from 0 - 0.25% to 5.25 - 5.5%

According to the Feds the drastic rate of increase was necessary to fight inflation to bring it down from about 8% to the target rate of 2%.

Since the last rate hike in July 2023, there has been 3 FOMC meetings that the Feds have let the interest rate band unchanged.

After the first pause in interest rate hikes, the market was hoping for the Feds to pivot and start reducing interest rates. 

Inflation has not been brought down to the target rate of 2% yet and until the recent FOMC meeting in December has always been above 3.2% In the first 2 FOMC meetings that the Feds left interest rate unchanged, they have left the possibility of more rate hikes in the future open. They said that inflation was still not fully under control and their dot plots of likely future interest rates still showed the expectation for the rate to go up further.

After the first 2 FOMC meetings that paused interest rate hikes, the  Feds cautioned against market expectations of imminent rate cuts and said that rates will remain "higher and longer" than markets expect. 

What transpired at the December 2023 was a major change by the Feds. Their dot plot of expected interest rate now shows 3 rate cuts of 0.25% each in 2024 and a further 4 rate cuts in 2025.

Based on prices in the futures market, the market is pricing in greater rate cuts that what is projected by the Feds  The market is pricing in a total cut of 1.5% for 2024.

Questions for discussion in comments:

1)  DO YOU EXPECT INTEREST RATES TO GO UP OR DOWN?

2)  WHEN DO YOU THINK RATES WILL START GOING DOWN? 
Will the Feds wait to see what the rate of inflation and the state of the economy is before they cut rates in say March or April?

3) WHY HAS THE FEDS CHANGED FROM "HIGHER FOR LONGER" TO BEING OPEN TO RATE CUTS?