The FOMC maintained the federal funds rate at 5.25-5.50%, citing 'lack of progress' toward its 2% inflation target and adjusting market expectations for future rate cuts.
The Federal Open Market Committee (FOMC) of the U.S. Federal Reserve maintained the federal funds rate at a range of 5.25-5.50% during its Wednesday meeting, marking the sixth consecutive time the benchmark rate has been held steady.
Fed leaves rates unchanged at 5.25-5.50 percent, citing a “lack of progress” towards 2% inflation target.
— TFTC (@TFTC21) May 1, 2024
The FOMC also adjusted its approach to quantitative tightening by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion, while keeping the cap on agency debt and agency mortgage-backed securities at $35 billion. Any principal payments exceeding this cap will be reinvested into Treasury securities.
Despite the expectations at the beginning of 2024 for a series of rate cuts, the recent economic data reflecting persistent inflation have dampened these hopes. According to the CME FedWatch tool, the likelihood of no rate cuts occurring this year has surged to nearly 25% prior to the Fed's latest decision, a significant shift from the mere 1% chance estimated a month ago.
The FOMC's statement read, "The Committee 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%."
Financial markets have reacted to the shift in expectations, with a noticeable decline in traditional market indexes. The Nasdaq has fallen approximately 5% from its high earlier in the year, and the S&P 500 has receded similarly since its year-to-date peak in late March. Bitcoin also dipped, trading down over 4% at $58,000 following the Fed's announcement, extending its decline from a mid-March record high above $73,000.
