Stock and cryptocurrency prices rose higher after the Federal Reserve announced they were keeping interest rates unchanged while also reiterating expectations of three rate cuts before the end of 2024.
The S&P 500 closed 1.15% higher at 18,240 Wednesday, while Bitcoin rose sharply to reclaim $67,000 after falling as low as $60,000 earlier. Meanwhile, bond yields fell into the red, with the 2- and 10-year notes slipping to 4.57% and 4.22%, respectively.
FOMC key takeaways
The Fed maintaining interest rates on Wednesday marked the fifth consecutive policy meeting without change.
The decision underscores the central bank's strategy of waiting for additional data before considering rate reductions.
Despite aggressive rate hikes over the past two years aimed at combating high inflation, Fed Chair Jerome Powell emphasized that the Fed is not yet prepared to ease borrowing costs, amidst ongoing challenges of high interest rates and inflation for Americans.
Speculation from Wall Street suggests a potential first cut could occur in the summer.
In the latest economic projections, the Fed signaled a revision in its rate cut expectations, foreseeing fewer reductions in 2025 and 2026 compared to December's forecast. While still anticipating three rate cuts this year, officials expect slightly higher interest rates in the long term.
The Fed's revised forecasts indicate an expectation of higher "core" inflation, excluding food and energy prices, than previously anticipated.
Chair Powell highlighted the delicate balance the Fed faces between cutting rates too soon and delaying necessary adjustments, emphasizing a "wait-and-see" stance given the current economic stability and growth.
“It is consequential,” Powell said. “Fortunately, with the economy growing, with the labor market strong and inflation coming down, we can approach that question carefully and let the data speak on that.”
Meanwhile, economic growth projections have also been adjusted upwards, with a brighter outlook for this year.
“The economy is strong, the labor market is strong and inflation has come way down,” he said.
The Atlanta Fed's latest projection predicts a solid 2.1% annual growth rate for the first quarter, following two consecutive quarters of robust growth, showcasing the strength of the country’s economy.
Analyst reaction
BofA: “During the press conference Chair Powell did not push back against 2024 cut expectations despite higher inflation data in January and March, while the median “dot” continued to signal three cuts this year, although by a smaller margin. Our economists are also calling for three Fed cuts in 2024.”
Morgan Stanley: “We continue to expect the first rate cut in June, and four 25bp cuts in total this year followed by an additional 200bp in 2025. By the June 12th FOMC meeting, core PCE inflation will be running at 2.6%Y, in line with what we think the FOMC will view as a comfortable inflation rate to start normalizing policy.
Citi: “We continue to expect the first cut from the Fed in June. In our base case where the labor market weakens, we expect the Fed to cut at every subsequent meeting for 125bp of cuts total this year. Should labor market data hold up, the Fed still seems set on cutting rates at least 75bp (quarterly cuts) justified by slower (if still elevated) inflation.”
Nomura: “We maintain our expectation of just two rate cuts this year, in July and December. The dot distribution suggests the FOMC is divided between two and three cuts this year, and policymakers are likely to be sensitive to upside surprises in inflation data. Powell signaled that an adjustment to balance sheet policy is likely to occur ‘fairly soon.’ We interpret this to mean an announcement reducing the pace of treasury QT is likely at the May meeting, with implementation beginning in June, slightly earlier than our previous expectation of June announcement, effective in July.”
UBS: “The press conference, combined with the SEP details, leads us to believe Chair Powell remains comfortable with three 25-bp rate cuts this year. While the median assumption in the SEP revised up in 2025 to three cuts, our assessment is that Chair Powell at the moment assumes a 25-bp rate cut at each SEP meeting would probably be appropriate, but that's a long way off. As he said this afternoon, a lot can happen between meetings.”