FOMC Holds Steady on Rates

The US Federal Reserve kept its key interest rate unchanged, leaving the target rate at 5.25-5.50%, the highest in 22 years, as expected by market participants. The central bank shifted its tone and indicated that it is done raising interest rates but made it clear it is not ready to start cutting interest rates anytime soon.

As optimism dwindled, a March rate cut looks unlikely as the Fed still has a long way to go to get inflation under control, although it is on its way to reaching its 2% goal. The FOMC statement indicated that policymakers are still looking for additional data to confirm that inflation and other metrics are still on track.

The market initially reacted positively to the news, with the benchmark S&P 500 gaining momentum. However, the optimism was short-lived as the US Indices’ and Treasury Yields trended down when Fed Chair Powell addressed the public. US Futures are slightly positive, and the US Dollar strengthened this morning.

Compared to the Fed’s December meeting, there has been a shift in the central bank’s stance. While in December, officials signalled the expectation of three quarter-point rate cuts in 2024; the current statement suggests a move toward considering rate reductions while maintaining flexibility. However, there is uncertainty about the timing of these potential rate cuts, with speculation that they might realistically happen in May.

The focus is now on upcoming US economic data releases, particularly the Non-Farm Payrolls report set to be released this coming Friday. This data will likely play a crucial role in shaping the market sentiment and providing insights into the overall economic outlook. All eyes will now be focused on all the major US economic data releases, with the all-important Non-Farm Payrolls set to be released this coming Friday.

Sources: Federal Reserve, Reuters, CNBC

Piece by Barry Dumas, Regional Head of Research

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