The FOMC left interest rates unchanged for the moment, but still expect 3-4 rate cuts through the rest of the year.
The Federal Reserve Board’s Federal Open Market Committee, or FOMC, left its key interest rate unchanged after its two-day meeting ended on March 20. The 5.25-5.50% range has been in place since July 2023.
The FOMC statement noted that inflation was dropping but had remained stubbornly high, or “stickier than expected”. Market participants had been expecting a rate drop in Spring 2024 since late 2023, but persistent inflation has pushed these plans to Summer 2024.
Officials expect to make any rate cuts only when they see that inflation is headed down to 2% per annum. “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 percent" the FOMC said in a statement. This is essentially identical to its January statement.
Market reaction
The market reaction was muted compared to that after the February announcement regarding January CPI rates. At that time, expectations of a rate cut in March were dashed as the January year-on-year CPI rate was at 3.1% instead of the 2.9% expected. The market reaction then had been sharp with a 1% drop almost immediately.
This time, the consensus is that the FOMC is being a little inflation tolerant for as long as the trend is downward. Most important in this direction is that the OMC indicated that it still expects to cut rates 3-4 times across the rest of the year.
According to the CME Group’s FedWatch tool, which was accessed after the market close for the day, the market was betting that there was a 70% chance of a rate cut in June, an 88% chance of a cut in July, and a 97% or higher chance of a cut by the end of the year. Overall, a drop below 5% is expected by at least 54% of respondents by the September FOMC Meeting.
