Economists, Analysts Find Good News In Little Movement From the Fed

While the Fed didn't make many moves in their meeting this week, economists and analysts found good news in the consistency of official comments and projections. The Fed kept its influential interest rates at its current level and made few changes to its projections of rate cuts. Chair Jerome Powell held that the Fed remains data-dependent in the last mile of its fight against inflation, and stubborn inflation to start the year is just a bump in the road. "The sum total of this 'no news is good news' press conference is that markets continue to have a green light to run higher," wrote Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance in a commentary. "This Fed isn’t going to stand in the way of the bull market."

Economists were largely encouraged by the Fed's reiteration that officials are looking for confidence that inflation is moving sustainably down.

"Economic resiliency and inflation stubbornness are chipping away at the Fed's appetite for easing, but not enough to derail rate cuts later this year," wrote BMO's Deputy Chief Economist Michael Gregory in a commentary. "However, timing is still very much in the air." The economic projections also backed up this assertion for some economists.

"Overall, the updated Summary of Economic Projections suggests that the FOMC believes that inflation is on a path back to its 2% target, but it is likely to be achieved slightly later than previously expected," wrote Wells Fargo economists Sarah House and Michael Pugliese in an analysis.

Surprisingly High Reports Haven't Shifted Fed's View That Inflation Is Falling

The Fed’s inflation-fighting mission isn’t going as well as it seemed at the end of last year.

After inflation reports in January and February showed higher-than-expected price increases, some experts speculated the Fed’s plans to cut its benchmark interest rate at some point this year might be in jeopardy.

But, as Fed chair Jerome Powell explained in his post-announcement press conference Wednesday, the two-month uptick in prices is being viewed more as a temporary setback than a sign that the war on inflation has taken a real turn for the worse.

“I think they (inflation reports) haven't really changed the overall story, which is that of inflation moving down gradually on a sometimes bumpy road toward 2%,” he said. “I don't think that story has changed. I also don't think that those readings added to anyone's confidence that we're moving closer to that point.”

Powell noted the Fed also didn't shift its outlook too much when prior reports had come in better than expected.

“We're not going to overreact as well to these two months of data, nor are we going to ignore them,” he said.

-Diccon Hyatt

Powell Repeats Refrain That Fight Against Inflation Goes On

Fed officials are sticking to familiar themes in their communications about the future path of the fed funds rate and the path of inflation.

The Federal Open Market Committee’s official statement Wednesday only had one change from the January statement, striking that job growth “moderated since early last year” and simply said the gains "have remained strong."

Fed chair Jerome Powell’s opening remarks at the post-announcement press conference also tread familiar ground.

“The economy has made considerable progress toward our dual mandate objectives,” Powell said. “Inflation has eased substantially while the labor market has remained strong. And that is very good news. But inflation is still too high. Ongoing progress in bringing it down is not assured, and the path forward is uncertain.”

-Diccon Hyatt

Correction, March 20, 2024: The original version of this blog post incorrectly identified which comments were in the January statement.

Analysts Talk About Fed's "Consistent, Stable" Decision and Projections

There wasn't much to surprise in Wednesday's Federal Reserve announcement and analysts feel that's a good thing.

"If the Fed was instead kind of skittish and got a month of bad inflation and adjusted their forecasts that would signal a little bit of unease on the Fed's part. And that would translate into investors being uneasy," said John Bellows Portfolio Manager and Research Analyst with Western Asset on CNBC. "And I think that will be the message over the course of the year—a more consistent, stable Federal Reserve."

That consistency and stability is helpful for investors, Bellows said, because they can trade on companies' progress and not the Fed's moves. Officials did change their long-term projections slightly, on average, taking one cut out of the projection for next year. David Kelly, the chief global strategist at JP Morgan Asset Management, said on CNBC the decision was also a positive. "What have we learned over the last year? We've learned that the Federal Reserve can jack rates up to five and quarter to five and a half (percent), they can really slam the brakes on the economy in terms of monetary policy, and the economy can take it," Kelly said.

Markets Jump at Fed Decision and Outlook

Stocks jumped and Treasury yields fell after the Federal Reserve left interest rates unchanged and, on average, maintained its expectations for rate cuts this year.

The Nasdaq Composite traded 0.4% higher Wednesday afternoon, while the S&P 500 and the Dow Jones Industrial Average rose 0.3%.

Read more about the market's reaction here.

-Colin Laidley

Predictions For Near Future Also Remain Steady; Long-Term Expectations Shift Slightly

Another clue as to how the Fed will move forward in its fight against inflation was also released this afternoon. 

The Fed's Summary of Economic Projections outlined that on average, the officials are still predicting to cut rates three times this year, despite their comments saying they are still looking for confidence that inflation is moving sustainably toward their 2% annual goal.

However, they cut their projections for the following year, saying they think one fewer cut will be necessary.

Read more about the projections here.

Fed Holds Interest Rates at 23-Year High

The Federal Reserve kept the fed funds rate at its current range of 5.25% to 5.50% Wednesday in a widely anticipated move.

Inflation is proving more stubborn than officials at the Federal Reserve had once hoped, this decision is the first time Fed officials are giving insight into how much the latest round of data has altered the central bank’s plans to cut its benchmark interest rate this year.

Attention will now move to Powell's press conference at 2:30 p.m. for more details about officials' thinking on today's decision.

Read more about the decision here.

What The Markets Expect From the Fed's Decision

Today's decision will be the first time markets get some insight into how officials have digested recent data about stubborn inflation.

Signs of sticky inflation have tempered expectations of an impending rate cut in recent weeks. Investors initially rallied at the promise of incoming relief from high interest rates, but have since dialed back their expectations.

At the beginning of the year, traders priced in a 70% chance that the Fed would make the first rate cut in their meeting today, according to the CME FedWatch Tool, which forecasts rate movements based on fed funds futures trading data.

Inflation has proven to be stickier than officials and forecasters expected in the months since then, making it highly likely that the Fed will keep rates at their current level today. "With the central bank highly attuned to the inflation data, rarely have inflation surprises influenced financial conditions as strongly as now," wrote Ryan Sweet, chief U.S. economist at Oxford Economics. Just ahead of the meeting, traders see an 8% chance of a cut in May and a 65% cut in June, according to the FedWatch tool.