6 Important Conclusions from the Fed’s FOMC Results that the Market Needs to Pay Attention to

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Bloomberg Technoz, Jakarta – The Federal Reserve (The Fed), the central bank of the United States, has finished holding an open committee meeting (FOMC) and announced the results early this morning. After being filled with worry for the last few days, market players finally got a big relief from the FOMC results.

The stock and debt markets scored a big rally with certainty that the world‘s most influential central bank maintained expectations of lowering the benchmark interest rate three times this year. Fed Governor Jerome Powell also reiterated that it was ‘feasible to start lowering interest rates at some point this year’.

The US dollar index closed down 0.41%, while Treasury yields, US debt securities, were cut in all tenors, especially UST-2Y and 3Y which fell 8.1 bps and 7.6 bps.

Meanwhile UST-10Y fell 2 bps to 4.273%. Stock prices also soared, with the Dow Jones closing with a gain of 1.03%, the S&P 500 also gaining 0.9% and the Nasdaq technology stock index even shooting up 1.25%.

The following are 6 important conclusions from the results of the Fed’s FOMC which was held on March 20 and need to be paid attention to by market players:

The FOMC’s dot plot projection shows Fed officials expect a median of three interest rate cuts in 2024, the same as the dot plot in the previous FOMC in December. However, the median estimate in 2025 increased from 3.6% to 3.9%

The FOMC decided unanimously to maintain the benchmark interest rate at the current level of 5.25%-5.5%, the highest level in the last two decades, for the last five meetings. An almost identical statement echoed a previous statement that said the FOMC did not expect to lower the benchmark interest rate until they had greater confidence that inflation was moving sustainably towards 2%.

The median estimate for PCE inflation figures, which is the Fed’s preferred inflation index, was unchanged at 2.4% for this year. Meanwhile, core inflation projections rose 0.2 percentage points to 2.6%. Economic growth forecast for 2024 rose from 1.4% to 2.1%.

Fed officials also raised their forecast for long-term interest rates, where the median was 2.6% from 2.5%. The change implies that interest rates should remain higher for a longer period of time in the future.

The Fed maintains the pace of quantitative tightening (quantitative tightening) with a maximum amount of US$60 billion in Treasury bonds and US$35 billion worth of mortgage-backed securities rolled onto the balance sheet each month.

Powell said it would be the right move to slow QT: “The decision to slow QT does not mean our balance sheet will shrink, but will allow us to approach peak levels more gradually. More specifically, slowing QT will help ensure a smooth transition, reducing the likelihood pressure experienced by financial markets,” Powell said.

The Fed’s March dot plot. (Dok: Bloomberg)