Federal Reserve holds rates steady, Powell signals no rate cut in March

US Fed Rate: The US Federal Reserve opted to maintain its key interest rates unchanged for the fourth consecutive meeting, reinforcing its commitment to a steady monetary policy. The decision, announced on Wednesday, holds the benchmark lending rate between 5.25 and 5.50%, marking a continuation of the 23-year high.

US Fed Meeting 2024

In a statement, the Federal Reserve acknowledged that the risks to achieving its employment and inflation goals were moving into better balance. The central bank has been focused on curbing inflation, with a specific target of 2% and emphasized that the rate-setting Federal Open Market Committee (FOMC) is unlikely to consider cutting interest rates until there is greater confidence in sustainable inflation progress.

Federal Reserve Chair Jerome Powell, speaking at a press conference following the decision, indicated that the policy rate was likely at its peak for the current tightening cycle. Powell expressed the belief that the committee would favor a rate cut in 2024, but he downplayed the possibility of such a move in the upcoming March meeting, citing the need for greater confidence in inflation trends.

Market reactions were immediate, with Wall Street stocks closing down sharply as traders digested the news. Analysts, including EY chief economist Gregory Daco, interpreted Powell's remarks as reinforcing the expectation that rate cuts might commence in May.

The decision comes amid strong economic data, with inflation showing signs of slowing down after a post-pandemic surge. The Fed's favoured inflation measure has dropped below an annual rate of 3%, while economic growth remained robust at 2.5% in 2023.

Analysts noted that Powell's guidance, coupled with the positive economic indicators, suggests a cautious approach by the Fed, with the first-rate cut likely to occur in May or June rather than March. Traders are now placing a greater-than-90% probability on a lower key lending rate by May 1, signalling increased confidence in a future cut.