US Fed keeps rates on hold but guides for 3 cuts. 5 takeaways from Powell's speech

The turnaround in sentiment has been swift—in January 2024, only 7 percent of fund managers subscribed to the ‘no landing’ scenario

US Federal Reserve Chairman Jerome Powell on March 20 announced the decision to keep the monetary policy rates unchanged and said the American central bank would wait for clearer signs of inflation falling before announcing cuts.

Here are some of the key takeaways from the two-day meeting:

Interest rates to be unchanged

The Fed kept interest rates unchanged at 5.25 percent to 5.5 percent. This was in line with with market expectations. The Fed rates have been on hold since July 2023 after the last hike in March 2022.

More evidence needed before rate cuts

Powell said while they expect to see three rates cuts by the end of 2024, officials want to see more evidence of inflation falling before they announce any cuts. The central bank has a 2 percent inflation target.

"We believe that our policy rate is likely at its peak for this type of cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” the Fed chair said.

Also read: Fed sees three rate cuts in 2024 but a more shallow easing path

Inflation cooling gradually

While not dismissing the recent inflation numbers that showed inflation was still hot, Powell added that that the overall story had not changed — "inflation moving down gradually, on a sometimes bumpy road, toward 2 percent".

The latest CPI report showed February inflation at 3.2 percent year-over-year (YoY) basis, higher than the  3.1 percent YoY rise in January.

Slowing pace of balance sheet runoff

Powell said the decision to slow the pace of runoff does not mean that the balance sheet will shrink instead it  "allows us to approach that ultimate level more gradually. In particular, slowing the pace of runoff will help ensure a smooth transition, reducing the possibility of money markets experiencing stress”. The process will begin soon, he added.

Also read: Nifty, Sensex may rise tracking global markets as investors cheer Fed rate cut plans

Markets cheer announcements

According to Bloomberg,  stocks and treasuries rallied as traders grew increasingly confident the Fed will start lowering interest rates in June.

The S&P 500 gained 0.89 percent to 5,224.62 and the Nasdaq Composite gained 1.25 percent to 16,369.41.

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