The Federal Reserve held rates steady for an eighth consecutive month, while holding to its forecasts of around three rate cuts in 2024, but the central bank hinted that stubborn inflation might delay any moves until later in the year.
The policy-making Federal Open Market Committee held its key rate at between 5.25% and 5.5%, the highest in 22 years, a unanimous move that Wall Street widely expected following the central bank's two-day policy meeting in Washington. The Fed's last rate move, a quarter-point increase, came in July 2023.
The newly released Summary of Economic Projections, known informally as the 'dot plots, indicates around 0.75 percentage point of rate reductions this year, interpreted as three quarter-point rate cuts. That level matches the Fed's last SEP release in December.
Still, the Fed noted that inflation risks remain "elevated" while the job market has remained "strong," suggesting it may not decide to begin lowering borrowing costs until later in the spring.
Federal Reserve Chairman Jerome Powell, however, told reporters in Washington the the central bank wasn't swayed by the faster-than-expected inflation readings over the first two months of the year, and said that price pressures will return to the Fed's 2% target along what he called a 'bumpy' path.
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"The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%," the Fed said in its official statement.
"In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans."
"The Committee is strongly committed to returning inflation to its 2% objective," the statement added.
Federal Reserve Board and Federal Open Market Committee release economic projections from the March 19-20 FOMC meeting: https://t.co/anzQf8L2Kv
— Federal Reserve (@federalreserve) March 20, 2024
U.S. stocks extended gains immediately following the Fed decision and ahead of Chairman Jerome Powell's question-and-answer session with the media. The S&P 500 was marked 33 points higher, or 0.64%, on the session
The Dow Jones Industrial Average was marked 273 points higher while the Nasdaq gained 147 points, or 0.91%.
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"The immediate market reaction is the relief we were expecting. Investors were worrying the Fed was going to pull back from rate cuts this year, so keeping three rate cuts on the table naturally pushes stocks higher and bonds yields lower," said Bryce Doty, senior portfolio manager at Sit Investment Associates.
Benchmark 10-year Treasury-note yields slipped 1 basis points to 4.287% following the interest rate decision and during Powell's press conference, while 2-year notes fell 5 basis points to 4.631%.
The U.S. dollar index, meanwhile, was last marked 0.25% lower on the session at 103.571 against a basket of six global currency peers.
CME Group's FedWatch now puts the odds of a May rate cut at just 11.6% but has bumped up the chances of a June reduction to around 65.4%.
The most optimistic reading for 2024 rate cuts puts the year-end federal funds rate at between 4.5% and 4.75%, effectively reflecting three quarter-point reductions from the Fed's forecasts.
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