The Fed chose not to change interest rates for the second year in a row and keeps the target range for benchmark interest rates at 4.25%-4.50%.
The decision to maintain current interest rates was unanimous among Fed officials. However, there have been differences of opinion regarding the pace of balance sheet reductions. Fed member Christopher Waller opposed the slowdown in the balance sheet reduction process and wanted to continue the current pace of cuts.
Josh Jamner, senior investment analyst at Clearbridge, said the Fed’s economic forecasts point to a more challenging economic environment in 2024. “However, these forecasts are consistent with recent estimates from Wall Street banks and macroeconomic research institutes. We therefore do not believe that these revisions will have a major impact on financial markets.”
Jamuna also noted that the Fed’s policies could ultimately fall behind fiscal policy. Market prices for federal fund futures suggest that the next rate cut will not be expected until July, suggesting that the outlook is unlikely to change in the near future.
Whitney Watson, global co-head of Goldman Sachs Asset Management, focuses on the Fed’s careful stance, describing the latest meeting as a “on-waiting” approach. “The revision of the FOMC forecasts has a hint of stags that economic growth and inflation expectations are moving in opposite directions,” Watson said. The Fed is expected to observe whether the current slowdown in economic activity will turn into a more important issue before making policy changes.
Michele Raneri, Transunio’s vice president and head of research and consulting for the US, said that while data from the latest Consumer Price Index (CPI) are relatively optimistic, the market is not expecting immediate interest rate cuts. However, future labor market data may affect future decisions.
“Despite the Fed’s current stance, there is still the possibility of interest rate cuts later this year, with multiple cuts likely to occur in 2025,” Raneri said. “If interest rates begin to fall, consumers may be more likely to use credit products that they have avoided in recent years, such as mortgage refinancing and car loans.
*This is not investment advice.
