On March 20, 2024, the United States Federal Reserve held its policy rate unchanged at a target range of 5.25-5.5%. The decision was in line with market expectations and the press release’s language showed close to no change compared to the one published after its January 31 meeting.

During a press conference following the announcement, Fed chair Jerome Powell said that the Fed remains “fully committed” to bringing back inflation at its 2% goal. However, he added that the central bank wants to see more evidence of sustainable inflation movement. The press release’s only difference from the one issued on January 31 was a comment on job gains, which remain strong. Chair Powell mentioned that strong job growth is not inconsistent with returning to price stability.

Here are other takeaways from yesterday’s decision, which was accompanied by revised economic projections:

  • The Fed expects to cut its policy rate by 75 basis points this year, the same as projected in December 2023
  • It revised up its GDP outlook from 2024 to 2026 without changing its unemployment rate forecasts, acknowledging stronger productivity growth
  • Inflation has been revised up this year in response to recent data, but core PCE inflation is unchanged for the remaining of the forecasting period

The central bank noted the resilience of the United States’ economy despite past rate increases. Real GDP growth has been revised up significantly for this year to 2.1% from 1.4% in its December 2023 projection. Growth rates for the years 2025 and 2026 were also revised up, although more slightly at 2.0%.

Clearly, the Fed does not want to overreact to inflation upticks in January and February. The Fed said inflation tends to be higher in the first half of the year compared to the second half, also mentioning possible seasonal adjustment issues, particularly in the January CPI report. Chair Powell reiterated that the labour market was
rebalancing, expecting more moderate wage growth.

We appreciated hearing Chair Powell saying that risks were symmetrical on both sides regarding upcoming monetary policy. In other words, cutting rates too quickly is not desirable from an inflation point of view, but cutting too slowly could hinder overall job growth. The Fed has two mandates: maintaining price stability and maximizing sustainable employment. This second remains important for the Fed, and may be overlooked by forecasters and markets just after an inflation spike.

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