No Change in Interest Rates: Insights from Recent Federal Reserve Actions and Projections

In their recent decision, Jerome Powell and the Federal Reserve have chosen to maintain interest rates in the range of 5.25% to 5.50%, in line with market expectations. This decision marks a stability in rates, keeping them at 5.50%, unchanged from the previous level. The deliberate choice suggests a strategic approach to economic management and stability.

The Federal Reserve’s communication extends beyond interest rates to include insights into their approach to Treasury and MBS holdings. With a unanimous FOMC vote, the Fed confirms its commitment to maintaining the current pace of reducing these holdings. They also acknowledge the challenges posed by tighter financial and credit conditions, recognizing the potential impact on the broader economy.

Looking into the future, the Federal Open Market Committee (FOMC) provides projections for key economic indicators. They keep the median 2024 unemployment projection at 4.1%, signaling a certain level of confidence in the labor market. However, the committee anticipates changes in interest rates, with median forecasts pointing towards rates of 3.6% in 2025 and 2.9% in 2026. This forward-looking perspective provides valuable insights into the Fed’s expectations and potential strategies for navigating economic conditions.

Additionally, Jerome Powell and the Federal Reserve express anticipation of a 75 basis point reduction in the coming year. This signals a proactive stance in response to evolving economic circumstances. The Summary of Economic Projections (SEP) further details the Fed’s outlook, indicating that interest rates are projected to conclude 2024 in the range of 4.50% to 4.75%. This projection reflects a notable decrease of 0.75% from the current levels, underlining the Fed’s commitment to adjusting its policy to support economic objectives.

Eight out of nineteen Federal Reserve officials project a policy rate above the 2024 median, while five anticipate it falling below that level. Following the Fed’s decision, yields for US 2- to 7-year bonds experienced a decline of more than 15 basis points in a single day.

The probability of a rate cut in May surged to 90% in US interest rate futures after the Fed’s decision, up from 80% just before, according to Fedwatch. This reflects an increased expectation in the market for a potential adjustment to monetary policy.

The median view of Fed officials for the fed funds rate at the end of 2025 is 3.6%, down from the previous projection of 3.9%. Additionally, their median expectation for the Fed funds rate at the conclusion of 2024 is 4.6%, in contrast to the current policy rate of 5.4%. These projections indicate a collective outlook among Fed officials of a potentially lower interest rate environment in the coming years.

Following the Federal Reserve decision, US interest rate futures now indicate a 90% probability of a rate cut in May, compared to 80% just before, according to Fedwatch.

Despite the Fed’s statement, US rate futures continue to price in over 100 basis points of rate cuts in 2024, showing little change from the situation before the Fed’s announcement, as observed through Fedwatch.

Fed officials project inflation at 2.4% in 2024, with a return to the 2% target anticipated by 2026. This insight into their inflation expectations provides a glimpse into the Fed’s outlook on price stability.

In the aftermath of the US Fed decision, spot gold experiences a further increase in value, rising by 0.7%. This movement suggests that the market is responding positively to the Fed’s actions, impacting the value of safe-haven assets like gold.

Fedwatch reports that the likelihood of a March 2024 rate cut surpasses 60% in US rate futures, following the recent Federal Reserve statement.

The US 2-year yield experiences a notable drop of over 20 basis points in a single day, settling at 4.53%.

The Dow Jones Industrial Average is poised to conclude at a record high, showcasing positive market sentiment.

Following the FOMC’s indication of the conclusion of rate hikes, the S&P 500 extends its gains, currently up by 0.65%. This movement reflects investor optimism in response to the Fed’s signals.

Fed FOMC Summary:

1. Rates held steady at 5.50%, maintaining a streak of three consecutive unchanged meetings.

2. The Fed’s statement adopts a cautious tone, indicating an assessment of the need for any additional policy firming.

3. According to the Dot-Plot, the FOMC concludes rate hikes and foresees three rate cuts in 2024, totaling 75 basis points.

4. The market responds with a decline in the U.S. Dollar, a plunge in bond yields, a stock rally, and a surge in gold prices.

Key Takeaway: The Fed leans dovish, suggesting a reluctance to raise rates further, marking the end of an aggressive tightening cycle.

🚨 Goldman Sachs is predicting that the U.S. Federal Reserve will implement three consecutive 25 basis points rate cuts in March, May, and June.

🚨 JP Morgan anticipates that the U.S. Federal Reserve will execute its initial rate cut in June, as opposed to the previously expected July, aiming for a target range 125 basis points lower by the end of the year.