Fed Meeting Today: FOMC Keeps Interest Rates Unchanged; Says Inflation Progress Has Stalled; Chairman Jerome Powell Speaks (2024)

The Decision

Furthermore, Fed officials are “prepared to maintain the current target range for the federal funds rate for as long as appropriate,” Chairman Jerome Powell told reporters at the post-meeting press conference.

The central bank also said that it would slow the pace of reducing its balance sheet starting in June. That decision ensures money markets don’t experience an episode of volatility and stress as seen in September 2019, Powell noted.

Expectations around when the Federal Reserve will lower interest rates this year shifted only slightly following Chair Jerome Powell’s press conference on Wednesday, indicating that investors’ views had been in line with the bank’s thinking.

The odds of September and November rate cuts improved slightly following the conclusion of the Fed’s policy meeting, prices of interest-rate futures indicate. There is currently a 42.4% probability of the first rate cut coming during the September meeting, according to the CME FedWatch Tool.

The CME FedWatch Tool also showed that there are now thin odds of a rate increase at some point during the year.

There was a “collective sigh of relief in the financial markets” after the Fed refrained from increasing its hawkishness dramatically at the May meeting, wrote Jack McIntyre, portfolio manager at Brandywine Global.

“In interpreting the statement in the context of recent macro releases, it is clear that the future path of Fed policy has become more uncertain,” wrote Daniel Murray, deputy chief investment officer and global head of research at EFG Asset Management.

“Futures are now pricing only slightly more than one rate cut this year. While it is not the central view, there is clearly also an increased probability that the Fed has to hike again,” Murray said. That scenario would likely play out if the labor market continues to show strength and inflation remains stubbornly above the bank’s 2% target.

A new phase could be on the way in terms of global monetary policy.

While economies and central banks in developed markets have been on generally the same path for most of the past four years—policymakers sought to boost growth during the pandemic and then took a more restrictive stance to fight inflation afterward—that is likely to change this year. Economic and inflation data for early 2024, plus statements by the European Central Bank, the Bank of Japan, and others, now suggest more divergent central bank policies.

“The difference between the United States and other countries that are now considering rate cuts is that they're just not having the kind of growth we're having,” Federal Reserve chair Jerome Powell said on Wednesday, while inflation rates abroad may be similar to those in the U.S. or lower.

Strong growth and low unemployment in the U.S. means the Fed has the “luxury,” Powell said, of holding interest rates steady for longer to continue to put downward pressure on inflation. Other central banks may be able to declare victory over inflation sooner than the Fed, but may also have to respond to weakening economic growth sooner.

“We will be careful and cautious as we approach the decision to cut rates, whereas I think other jurisdictions may go before that,” Powell said.

Higher interest rates for longer in the U.S., relative to abroad, are a recipe for a strong dollar. The U.S. Dollar Index, which measures the dollar against a basket of other currencies, is up 4.5% so far this year.

As for emerging markets, Powell said that he sees less turmoil than in previous periods of higher Fed interest rates. “I think partly that’s because emerging market countries, many of them have much better monetary policy frameworks, much more credibility on inflation, and they're navigating this pretty well this time,” Powell said.

Federal Reserve Chair Jerome Powell said Wednesday policymakers are ready to spring into action if the U.S. economy, particularly the labor market, experiences a sudden downturn.

But the key words are “unexpected weakening,” and the Fed would likely need to see more than simply the unemployment rate climbing above 4% from its current level of 3.8%.

“It would have to be meaningful and get our attention—and lead us to think that the labor market was really significantly weakening for us to want to react to it,” Powell said.

He added that unemployment increasing by a “a couple of tenths” of a percentage point would probably not do that.

“It would be a broader thing that would suggest that it would be appropriate to consider cutting” interest rates, Powell said. He added that the decision by Fed officials to lower rates depends on all the facts and circ*mstances, not just that one.