Investors breathed a sigh of relief Wednesday after the Federal Reserve indicated the central bank’s next action likely won’t be to raise interest rates.
The Fed held interest rates on hold Wednesday, raising a red flag over recent disappointing inflation data and extending its wait-and-see stance, which could last until later this year.
However, Federal Reserve Chairman Jerome Powell downplayed the possibility of further rate hikes at an afternoon press conference. This risk is increasingly worrying investors as there continue to be signs of sustained inflation.
At a press conference after the Fed announced it would keep interest rates unchanged, Fed Chairman Jerome Powell said, “It is unlikely that the next policy rate decision will be a rate hike.” “I don’t think that’s likely.”
The Dow Jones Industrial Average made an initial jump in response to Powell’s comments (jumping more than 500 points), but the euphoria then faded and it closed at $87.37.
During Powell’s press conference, the S&P 500 rose nearly 0.8% and the tech-heavy Nasdaq rose more than 1%, but both ended the day in the red.
The Fed’s latest policy statement, issued at the end of a two-day meeting, kept key elements of its economic assessment and policy guidance intact, noting that “inflation has moderated” over the past year and explaining how inflation has slowed. The discussion centered on whether the current situation was You can lower your borrowing costs.
Still, Fed officials highlighted concerns that the first few months of 2024 have done little to foster the confidence the Fed needs to lower inflation.
“In recent months, there has been no further progress toward the Committee’s 2% inflation target,” the Fed said in a statement.
While the previous statement in March suggested that the risks to the economy were “moving towards a better balance” and an improvement in power relations, the new statement said risks to the economy were “moving towards a better balance than in the past”. The assessment of “making progress” suggested that the process may have stalled. Year. “
Chairman Powell acknowledged that the tight monetary policy had been restrictive, but would prove to be restrictive enough “over time,” indicating the central bank was not considering raising interest rates.
“We believe it is restrictive,” Powell said. “And we believe that over time, that will become limiting enough. That will be the question that the data will have to answer.”
Wall Street traders are currently betting on one rate cut this year, with the Fed’s benchmark rate currently at a 23-year high after 11 hikes that ended last July.
Traders have drastically revised down their forecasts for up to six interest rate cuts starting in 2024.
As of the Fed’s last meeting on March 20, policymakers themselves expected three rate cuts in 2024.
Over time, the Fed’s rate cuts will lead to lower borrowing costs for consumers and businesses, including mortgages, auto loans, and credit cards.
Most economists say they still expect two rate cuts this year. But many acknowledge that it’s possible there could be just one rate cut, or even none at all.
That’s because rising inflation is proving more persistent than almost anyone expected.
Inflation reached an annual rate of 4.4% in the first three months of this year, up from 1.6% in the final quarter of 2023 and well above the Fed’s 2% target, according to the Fed’s recommended metrics.
with post wire
