Federal Reserve Keeps Interest Rates Unchanged

The Federal Reserve (Fed) has opted to keep interest rates unchanged for the second consecutive year, maintaining the target range of the benchmark interest rate at 4.25%-4.50%.

The decision to hold the current interest rate was unanimous among Fed officials. However, there was a disagreement regarding the pace of balance sheet reduction. Fed member Christopher Waller opposed any slowdown in this process, advocating for the current pace of reduction.

Josh Jamner, Senior Investment Analyst at Clearbridge, noted that the Fed’s economic forecasts suggest a more challenging economic environment for 2024. “Policymakers are predicting a moderate economic slowdown with rising inflation and unemployment,” Jamner commented. “These forecasts align with recent estimates from Wall Street banks and macroeconomic research organizations, so we do not expect significant impacts on financial markets.”

Jamner also pointed out that the Fed’s policies might lag behind fiscal policy. Current market projections for federal funds futures indicate that the next rate cut is not expected until July, with little chance of changing this outlook in the near term.

Whitney Watson, Global Co-Head of Goldman Sachs Asset Management, characterized the Fed’s cautious approach as a “wait-and-see” tactic. “The revisions to the FOMC’s forecasts suggest stagflation, with economic growth and inflation expectations moving in opposite directions,” Watson stated. The Fed appears poised to monitor whether the current economic slowdown worsens before implementing policy changes.

Michele Raneri, Vice President and Head of US Research and Consulting at Transunion, expressed that while the latest Consumer Price Index (CPI) data provides some optimism, the market is not anticipating an immediate rate cut. Nevertheless, forthcoming labor market data could sway future decisions.

“Despite the Fed’s current stance, the potential for a rate cut later this year remains, and multiple cuts could follow in 2025,” Raneri added. “Should interest rates decrease, consumers may be more inclined to utilize credit products they have hesitated to engage with, such as mortgage refinancing and auto loans. A favorable credit environment could spur new borrowing activities and bolster consumer confidence.”

*This is not investment advice.