Fed holds rates; March rate cut unlikely, markets react.

The Federal Reserve has decided to leave interest rates unchanged for a fourth straight time, dampening market hopes of an initial rate cut in March.

In its January 31st meeting the Federal Open Market Committee (FOMC) approved the pause, which kept the benchmark interest rate in the target range of 5.25% to 5.50%. This decision was widely expected by the markets. The Fed has now paused three times in a row after 11 consecutive rate increases in the current tightening cycle.

The Fed noted in its rate statement that it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.” This was a strong signal to the markets not to expect a rate cut in March.

The statement said that the “risks to achieving its employment and inflation goals are moving into better balance”. This was a departure from previous statements in which the bias was towards raising interest rates due to the risk of inflation moving higher.

Fed Chair Jerome Powell’s press conference after the meeting poured more cold water on expectations for a rate cut in March. Powell was skeptical that the Fed would feel confident to start trimming rates in March, although he did not completely rule out such a move. Powell stressed that the Fed was not in a rush to lower rates, noting that inflation had dropped without dragging down the economy or causing high unemployment – in other words, the economy is not too strong and there is no need to rush into rate cuts.

In December, Powell acknowledged that the Fed would lower rates in 2024 and markets pricing for a March cut was as high as 80%. Since then, the odds of a March cut have been falling sharply and are currently at only 30%. The markets are widely expecting that the Fed will hit the rate-cut button at the May rate meeting.

On Thursday, the US dollar has posted slight gains against the EUR/USD currency pair and the GBP/USD currency pair on Thursday. The US dollar has shown stronger gains against risky currencies as in the AUD/USD currency pair, which gained 0.62%.

In the US, the major stock indices fell sharply on Wednesday.

The S&P 500 Index fell 79.32 points (1.61%) to close at 4,8545.65 while the Nasdaq 100 Index tumbled 339.47 points (1.94%) to close at 17,137.24.

Buka akaun dagangan patuh syariah anda di Weltrade.
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