After the FOMC’s March 2024 meeting, a report released by its members continued to project three cuts to the fed funds rate this year.1 This was generally in line with previous FOMC projections, and reassured investors that rate cuts remained on the Fed’s agenda. What’s less clear is the timing of those rate cuts. “Inflation remains a bit sticky, and the Fed realizes that once they start with rate cuts, it is hard to stop doing so in future meetings,” says Eric Freedman, chief investment officer for U.S. Bank Wealth Management. In a statement released after its March meeting, Fed Chair Jerome Powell stated, “The Committee does not expect it will be appropriate to reduce the (fed funds) target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”2
Inflation, as measured by the Consumer Price Index, stood at 3.2% in February.3 The most recent release of a closely watched Fed inflation measure, the core personal consumption expenditures (PCE) index, was 2.8% higher at the end of January than the previous year, its lowest reading in almost three years.4
Market reacts to Fed policy moves
After the Fed first indicated, in late 2023, that fed fund rate cuts were on the table, markets initially priced in the first rate cut for the Fed’s meeting in March 2024. Powell dismissed that likelihood in comments offered after January’s FOMC meeting.5 As inflation hovered well above the Fed’s 2% target, markets exhibited nervousness about whether the Fed might scale back its stated rate cut plans. However, with FOMC projections clarifying that the Fed still anticipates making three rate cuts in 2024, based on current information, equity markets initially reacted favorably. The S&P 500 moved nearly 1% higher in the hours after the Fed’s March announcement. Notably, the FOMC did scale back rate cut projections for 2025.