Fed holds rates steady at March FOMC meeting

The central bank will look to cut interest rates three times by the end of 2024.

• The Federal Reserve (Fed) elected to not raise the federal funds rate at the March 2024 Federal Open Market Committee (FOMC) meeting.
• It is the fifth consecutive meeting during which the central bank has chosen to hold interest rates steady, with its last rate hike coming in July 2023.
• The central bank's updated "dot plot" includes three rate cuts by the end of 2024.
• The federal funds rate target range remains 5.25%-5.50% and the Fed's cumulative total increase sits at 525 basis points (bps) since March 2022.
• Fed Chair Jerome Powell reiterated that the central bank remains fully committed to bringing inflation down to its stated 2% target.

As was widely expected, the Fed closed out its March 19-20, 2024, FOMC meeting by holding the federal funds rate at its current target range of 5.25%-5.50%. This decision marks the fifth consecutive FOMC meeting where the central bank elected to keep interest rates at their current levels.

The federal funds rate remains at its highest mark in over 20 years, but as indicated in the updated Summary of Economic Projections (SEP) and “dot plot,” rate cuts remain on the horizon, with the Fed forecasting three 25 bps cuts occurring by year’s end.

No specifics were given as to when cuts would begin, with Chair Powell reiterating that all monetary policy decisions are made “meeting by meeting.” Markets reacted favorably to the Fed’s rate cut projections, with the S&P 500 moving above 5,200 for the first time.

“The Fed emphasized it is ‘patiently confident’,” said Raymond James Chief Investment Officer Larry Adam. “It is ‘patient’ and not overly concerned by the recent bump in inflation as it expects inflation to continue to decelerate. The Fed remains ‘optimistic’ it can still nail a soft landing – with the help of likely three interest rate cuts that are still expected to start ‘at some point this year’.”

Chair Powell highlighted in his post-meeting press conference that the current federal funds rate is likely at its peak – and Adam noted that this signals a tolerance from the Fed of slightly hotter inflation in the near term as Chair Powell expressed confidence that inflation would move back to the Fed’s target of 2% over the longer term.

The March SEP displayed higher economic growth, lower unemployment and slightly higher inflation during 2024 than previously estimated in the December 2023 SEP. These factors contributed to the Fed removing one potential rate cut from its 2025 projections, while the long-term estimate of achieving 2% inflation remains sometime in 2026.

“We were concerned with the slow pace of inflation target conversion and the effects it could have had on Fed officials,” said Raymond James Chief Economist Eugenio Alemán. “Although it is clear that this has changed the Fed’s view of interest rates in 2025 and 2026, it did not affect its short-term federal funds rate expectations.”

The next FOMC meeting takes place April 30-May 1.

All expressions of opinion reflect the judgments of the Raymond James Chief Investment Officer and Raymond James Chief Economist and are subject to change.

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