US Federal Reserve Chairman Jerome Powell announced on March 20 that the central bank would maintain unchanged monetary policy rates, opting to wait for clearer signs of inflation easing before considering any rate cuts.
Key Takeaways from the Fed Meeting:
- Unchanged Interest Rates:
The Federal Reserve decided to keep interest rates steady at 5.25 percent to 5.5 percent, aligning with market expectations. Rates have remained unchanged since July 2023, following the last hike in March 2022. - More Evidence Needed for Rate Cuts:
Powell stated that while the Fed anticipates three rate cuts by the end of 2024, policymakers await further evidence of inflation moderating before implementing any cuts. The central bank maintains a 2 percent inflation target. - Gradual Cooling of Inflation:
Despite recent high inflation figures, Powell emphasized the overall trend of inflation gradually receding towards the 2 percent target. February’s Consumer Price Index (CPI) reported inflation at 3.2 percent year-over-year, slightly higher than January’s 3.1 percent. - Slowing Balance Sheet Runoff:
The Fed plans to reduce the pace of balance sheet runoff gradually, aiming for a smooth transition and avoiding stress in money markets. Powell clarified that this adjustment doesn’t mean the balance sheet will shrink but will reach its ultimate level more gradually. - Market Response:
Following the announcements, both stocks and treasuries rallied, with traders anticipating interest rate cuts starting in June. The S&P 500 rose by 0.89 percent to 5,224.62, while the Nasdaq Composite increased by 1.25 percent to 16,369.41.
Overall, the Fed’s decision reflects a cautious approach, prioritizing stability and gradual adjustments in response to evolving economic conditions.
