March Fed Meeting Is Expected To Leave Interest Rates Unchanged

Fixed income markets expect the US Federal Reserve to keep rates steady as it concludes its next meeting on March 20. If so, this would continue a recent series of meetings with the Federal Reserve leaving interest rates unchanged. The last interest rate increase came in July 2023. However, markets currently expect the Federal Reserve to cut rates no later than July 2024 and perhaps May of this year.

The path of interest rates

Both the Fed's projections and market expectations foresee interest rates in 2024, but weighted to the second half of the year. Markets currently expect approximately three or four cuts by December 2024. That implies short-term rates will end the year at just over 4%.

However, at the March meeting, Fed authorities will update their forecasts for economic variables in the future. Summary of Economic Projections. This includes the outlook for interest rates. Markets will closely monitor the Federal Reserve's update.

He Minutes of the Federal Reserve's January meeting. which were published on February 21 said: “In discussing the policy outlook, participants judged that the policy rate was probably at its peak for this tightening cycle.” This implies that interest rates should fall in the medium term.

However, the minutes also said that “participants generally indicated that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent". Therefore, Fed policymakers are not necessarily ready to cut rates yet.

Still, the Federal Reserve is beginning to discuss tapering, marking a shift from 2023, when language leaned more toward scenarios in which interest rates could rise further.

The economic data

Inflation is clearly below the peak levels that alarmed the Federal Reserve at the beginning of this tightening cycle. However, the Federal Reserve's annual target is 2%, and recent reports imply that inflation is still slightly above that target, and may no longer be moving toward it.

The Federal Reserve's favorite Personal consumption expenditure price index showed annual inflation of 2.4% for the year to January 2024. That figure jumps to 2.8% if food and energy trends are excluded. However, in the month of January there was a price increase of 0.4%, according to PCE estimates, which is relatively high compared to recent months.

He Consumer's price index, which offers an alternative measure. It estimates that annual inflation remains at an annual rate of 3.1% in January 2024, or 3.9% if food and energy costs are excluded, but with little disinflation from October 2023. The Federal Reserve will examine the publication of another CPI update on March 12. of your next meeting.

Employment data has also been reasonably strong in recent months, calming potential fears that the Federal Reserve would have to cut rates to avoid a recession. The February US employment report will be released on March 8 and will provide more data ahead of the Federal Reserve's March meeting.

What to take into account

Markets will be greatly surprised if the Federal Reserve changes interest rates on March 20. However, the main question is when the interest cuts will occur in 2024. Comments in the Federal Reserve statement, press conference and Summary of Economic Projections are likely to inform the timing of the rate cuts of interest.

Currently, markets believe the first rate cut will likely come in June, but it could be as early as May or as late as July. After the March meeting, markets should have a more accurate view of both the timing of the first cut and how many cuts are expected in 2024.

Correction: The February employment status report will be published on March 8; An earlier version of this story listed the date incorrectly as March 9.

Leave a Comment

Comments

No comments yet. Why don’t you start the discussion?

Leave a Reply

Your email address will not be published. Required fields are marked *