The US Federal Reserve (Fed) left interest rates unchanged on 20 March for the fifth consecutive time, and it tweaked projections in ways that suggest less rate-cutting than previously hoped for may lie ahead. Yet the stock market took the news in its stride, ending the day at all-time highs.
The Fed’s announcements suggest that its plans to bring rates down this year remain intact, though the questions of “when” and “how much” are uncertain. Several inflation indicators for the first two months of 2024 have come in higher than expected, undermining the case for imminent interest rate cuts.
But the Fed’s new projections (see “dot points” below) show that officials continue to anticipate three cuts this year, unchanged from last December. That would take the Fed Funds Rate from 5.5% to 4.75%, a process likely to commence around June or July, depending on how inflation data unfolds.
Source: Financial Times
Officials also raised their projection for US GDP growth this year, to 2.1% from 1.4% in December, and their median projection for inflation excluding food and energy ticked up to 2.6% from 2.4%. In other words, the consensus of the Fed pointed to both stronger growth and less of a drop in inflation than was the case three months ago, helping explain diminished rate cut expectations.
The bottom line: Fed officials continue to anticipate inflation falling and rate cuts later in the year—just not to the extent they did three months ago. The good news was reflected in sharp moves in financial markets: the yield on the 2-year Treasury bond plummeted, while stocks hit record highs.
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