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After a two-day policy meeting, the Federal Open Market Committee (FOMC) has decided to keep the overnight borrowing rate of the central bank at 5.25% – 5.5%, the same level as in July 2023, and the highest in 23 years.
No change in interest rates
Along with this decision, Fed officials also maintained their projection of three rate cuts of 0.25 percentage points this year. When implemented, this will be the first rate cut since the early days of the Covid-19 pandemic in 2020.
The forecast for these rate cuts is based on the Fed’s dot-plot chart. The chart represents the views of 19 FOMC officials on interest rates this year and in the future. However, it does not indicate the exact timing of the rate cuts.
In the previous update in December last year, the dot-plot chart predicted four rate cuts in 2024, one more than the current projection. The committee expects three more cuts in 2026 and then two more in the future until the federal funds rate stabilizes at around 2.6%. This figure is close to the neutral level estimated by policymakers.
A change in the statement
Federal Reserve Chairman Jerome Powell noted that a strong job market would not deter the central bank from cutting interest rates. “Strong job growth itself would not be a reason for the Fed to delay rate cuts,” he said.
Powell also emphasized that an increase in inflation data would not change the overall downward trend. In fact, inflation is still gradually declining, although it may be fluctuating, but the trajectory is still heading towards the target of 2%. Powell stated that the Fed would not overreact to the hot data from January and February, but would not ignore them either.
After the decision to maintain the plan of three rate cuts, the S&P 500 index surpassed the 5,200 point level, reaching a new record high. Prior to the meeting, some investors were concerned that recent hot inflation reports could lead to fewer rate cuts, even fewer than market expectations. Financial stocks surged following the Fed’s decision, with hopes that interest rate cuts this year would boost economic growth.
