Fed ‘holds its breath’: Leaves interest rate unchanged in March

It was already known: the Federal Reserve United States (Fed) kept unchanged the level of interest rate in a range between 5.25 and 5.50 percent in its meeting on March 20, as in the last meeting in January, just as the market expected.

The Reference rate It has been at that level since the July 2023 decision, being the highest in the last 22 years. However, the market is attentive to the tone of the statement and the new expectations of the Fed which are updated quarterly.

“When considering any adjustment to the target range for the federal funds ratethe Committee will carefully evaluate the incoming data, the evolution of prospects and the risk balance“, He said Fed Chairman Jerome Powellat a press conference.

He added that the Committee does not expect it to be appropriate to reduce the target range until you have won greater confidence in what inflation is moving sustainably toward 2 percent.

“It will be appropriate to start reducing the rates until we are more sure that this is the case. I said that many times, so that was the main part of the message. We repeat it today,” Powell stressed.

BBVA Research Analysts They noted that the ad suggests that the Fed still waiting for the disinflation run its course this year, but for now it remains in wait-and-see mode.

“We maintain our expectation of a first cut in June and an estimated -75 basis points throughout 2024,” they indicated. Banorte economists.

Luis Gonzali, chief investment officer at Franklin Templeton, told Bloomberg Financial, that Federal Reserve expect to see a clearer downward trajectory of inflation, “which makes us think if we are really in a more inflationary world than before. In the pre-pandemic, USA had one inflation of 2 percent, today there is no clear path on how to lower the inflation again at 2 percent.”

The Fed decision It occurs at a time when the Personal consumption price index (PCE, in English), to which it gives greater follow-up for its monetary policy decisionsstood at 2.4 percent annually in January and the underlying rate, at 2.8 percent.

Meanwhile he Consumer’s price index (CPI, in English) rebounded to 3.2 percent annually in February and the underlying stood at 3.8 percent.

Just two weeks ago, Fed Chairman Jerome Powell, suggested that the us central bank “wasn’t far” from having the necessary confidence that inflation was heading toward its 2 percent goal, which would allow it to begin reduce your reference rate.

Soft landing

Although the expectation of three cuts remained, the rate projections for 2025 and 2026 they had upward revisionswhich suggests that the Fed would give the economy a soft landing.

The median about the interest rate By the end of 2025 it went from 3.6 to 3.9 percent, and in 2026 from 2.9 to 3.1 percent. Therefore, in 2025 it would be between 3.75 to 4.00 percent, and in 2026 between 3.00 and 3.25 percent.

Ryan Sweet, chief US economist at Oxford Economics, indicated that although the expectation of three cuts In 2024, the forecast of one for 2025 was eliminated.

“The belief that fewer cuts will be needed next year probably suggests that the central bank is assigning a higher probability of a soft landingor of a return of inflation to its goal without pushing the economy into a recession“, said.

One of the reasons why the Fed make your cuts gradually is that the inflation refuses to give in. The inflation expectation For December it remained at 2.4 percent annually, but the underlying was revised from 2.4 to 2.6 percent annually.

In 2025 the expectation on the general inflation It was revised upward from 2.1 to 2.2 percent and it would not be until 2026 when the 2.0 percent objective was achieved.

Powell stressed that while they have made significant progress in their fight against inflation In recent months he said that “we are now seeking confirmation that that progress will continue.”

“We will have to see how the data arrives. Of course, we would love to get great data from inflation“Powell stated.

Strong economy

The Fed also sees ahead a resilient economy reflecting in their GDP expectations and the working marketan area in which it must also pay attention due to its dual mandate.

“Recent indicators suggest that the economic activity has been expanding at a solid pace. He increase in employment has remained strong and unemployment rate “It has remained low,” he highlighted.

For GDP, growth was revised from 1.4 to 2.1 percent for the fourth quarter of the year; In 2025 it went from 1.8 to 2.0 percent and in 2026 from 1.9 to 2.0 percent.

According to the unemployment rate and before a strong labor marketis estimated to close this year at 4.0 percent, below the 4.1 percent previously estimated.

“It is likely that a working market adjusted, resilient consumption, measures of rising personal debt and a positive growth act as main obstacles to inflation,” Invex analysts mentioned in this regard.

Wall Street moves after the Fed’s decision

The Actions They went up and bond yields fell after the Fed maintained its three-year forecast rate cuts in 2024easing concerns about a delay in reversing the steepest hikes in a generation.

Stocks Headed Toward Another All-Time High due to speculation that policy easing will bolster the outlook for U.S. businesses. A rally in Treasuries curtailed this year’s sell-off driven by concerns that rates will stay high for longer.

Wall Street will soon change course due to comments from Jerome Powell, who will hold a press conference starting at 2:30 pm in Washington. Aside from your views on rates, inflation and growth, traders are hoping to hear your take on the company’s $7.5 trillion balance sheet. Federal Reserve (which the central bank has been reducing by allowing some securities to mature without replacing them), a process known as quantitative tightening.

The S&P 500 exceeded 5,180 points. Two-year Treasury yields fell four basis points to 4.64 percent. The dollar fluctuated.

With information from AP and Bloomberg.