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Key takeaways

  • The Federal Open Market Committee (FOMC) announced on March 20 that it would maintain its policy rate in a range of 5.25% to 5.5%.
  • The March decision marks the fifth consecutive meeting at which the Federal Reserve (Fed) has opted to hold interest rates steady.
  • While the fed funds rate has likely reached its peak for this tightening cycle, questions remain about the precise timing and extent of potential 2024 rate cuts.

Contributors

Cristina Dwyer

Analyst, J.P. Morgan Wealth Management

The Federal Reserve (Fed) announced at its March 2024 meeting that it would maintain the overnight federal funds rate at the current range of 5.25% to 5.5%.1 This decision marks the fifth consecutive meeting at which policymakers have opted to hold rates steady and keeps the federal funds rate at the highest target range in over 22 years.2

Chairman Jerome Powell emphasized the Fed remains “fully committed” to bringing inflation down to its 2% target. Powell emphasized that the “economy has made considerable progress toward [its] dual mandate objectives” and that “inflation has eased substantially while the labor market has remained strong, and that is very good news.”3

Market observers and participants widely anticipated that the central bank would keep rates at current levels given February’s hotter-than-expected labor market data and slightly higher-than-expected inflation data. Additionally, March’s Federal Open Market Committee (FOMC) meeting left open the exact timing of potential rate cuts, but our view remains that we anticipate the first cut in June.

Regarding the extent of cuts, the Fed did not shift away from its projection of three rate cuts in 2024, though it still remains a possibility that there will be fewer. Powell emphasized the committee will continue its data-dependent approach and evaluate data and rate hike decisions on a “meeting by meeting” basis.4

An uncertain path forward

The post-meeting press conference offered additional insight into the FOMC’s thinking and the potential next steps. But, once again, those looking for evidence of the Fed’s timeline for rate cuts received few definitive answers from Powell.

Powell highlighted that despite high interest rates, economic growth has remained relatively strong and inflation has materially lowered over the past year. Consequently, the FOMC raised it growth and inflation expectations for 2024. After acknowledging these positive developments, Powell noted that there is still plenty of progress to be made on meeting its 2% inflation target. Inflation remains too high and the labor market remains too tight. As ongoing economic progress is not assured, Powell emphasized “the path forward is uncertain.”5

Although the policy rate is likely at its peak for this tightening cycle, Powell said 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%.”6 Powell reaffirmed the Fed will continue to evaluate data prints and “balance the risks” of high inflation and the toll of high rates on the economy. Importantly, the Fed remains prepared to maintain the policy rate at current levels for longer if necessary, until there’s more evidence that inflation has meaningfully lowered.

Powell emphasized a soft economic landing remains an uncertain outcome – however, he noted “the risks to achieving our employment and inflation goals are moving better into balance”7 given the welcomed moderation in the labor market and inflation over the past few months.

Market reaction

U.S. equities rallied higher in the afternoon following the Fed’s announcement. Investor sentiment improved as the Fed didn’t offer any surprises in its decision to keep rates unchanged and the expectation that there will be rate cuts in 2024.

The S&P 500 rallied to another record closing high on the day of the Fed’s announcement, up by almost 1%. The Dow Jones Industrial Average rose around 1% on the day of the Fed’s announcement, while the Nasdaq rose around 1.3%.

The bottom line

At its March 2024 meeting, the Fed maintained interest rates at its decades-high range. In summary, Powell’s response to the question of an upcoming policy rate cut as data-dependent, especially on labor market conditions, emphasized that the Fed is seeking more data to bring greater confidence that inflation has sustainably moved to its 2% target. This supports our view that the Fed will cut interest rates three times this year.

References

1.

Board of Governors of the Federal Reserve System. “Federal Reserve Issues FOMC Statement.” (March 2024).

2.

Board of Governors of the Federal Reserve System. “Transcript of Chair Powell’s Press Conference Opening Statement”(March 2024).

3.

IBID.

4.

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5.

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6.

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