Federal Reserve Holds Rates Steady in March

Rate illustration with money
Rate illustration with money | Image by Dilok Klaisataporn/Shutterstock

Federal Reserve participants took a neutral policy approach at their March meeting, holding interest rates steady and releasing an updated dot plot that maintains the central bank’s forecast of three rate cuts in 2024.

The Federal Open Market Committee (FOMC) kept interest rates unchanged at 5.25% to 5.50%, marking the fifth consecutive meeting without a change in monetary policy.

While FOMC participants expect rate cuts sometime this year, the Fed’s official policy statement suggests members need more time to assess incoming data, the evolving economic outlook, and the risks associated with holding rates higher for longer.

“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” the Fed’s policy statement read.

Despite higher-than-expected inflation in January and February, Fed Chair Jerome Powell indicated the committee was confident in its ability to get inflation back to the 2% target over time. He said if upcoming data supports the notion of rate cuts, then participants would start considering dialing back policy restraint.

However, Powell explained during his post-FOMC press conference that if the Fed reverses policy too quickly or too much, it could reignite inflation. Conversely, if the Fed holds rates too high for too long, it could cause unnecessary harm to the economy.

“We’ve had two months of kind of bumpy inflation,” Powell said during the press conference. “Now… the question is, are they more than bumps? And we can’t know that. That’s why we are approaching this question carefully.”

“Given the acceleration in core inflation in early 2024, this suggests that the FOMC does not expect to cut the fed funds rate at its next meeting,” wrote PNC chief economist Gus Faucher in an email to The Dallas Express. “That said, the fact that the FOMC mentioned conditions for a rate cut but made no mention of a potential rate hike indicates that the FOMC is maintaining a bias toward rate cuts.”

According to the Fed’s updated dot plot, participants expect a Fed funds rate of 4.6% at the end of 2024, the same expectation listed in December. If the Fed hopes to lower rates to its 4.6% target, it would require about three quarter-point rate cuts by the end of this year.

Overall, the FOMC has penciled in a 4.6% target by the end of 2024, a 3.9% target by 2025 (up from 3.6% in December), and a 3.1% target in 2026 (up from 2.9% in December).

Furthermore, the median 2024 forecast shows an uptick in GDP from 1.4% to 2.1%, a drop in the unemployment rate from 4.1% to 4.0%, and a spike in Core PCE inflation from 2.4% to 2.6%, data shows.

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