Grant’s Interest Rate Observer editor Jim Grant explains why inflation won't easily fade away on 'Making Money.'
The Federal Reserve left interest rates unchanged at its March meeting for the fifth straight time as inflation remains high for many Americans. Policymakers also clarified that plans to cut rates may be pushed out further but remained committed to three this year.
"The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks," policymakers noted in a statement.
| Ticker | Security | Last | Change | Change % |
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| SP500 | S&P 500 | 5633.09 | +7.07 | +0.13% |
| I:DJI | DOW JONES AVERAGES | 41622.08 | +228.30 | +0.55% |
| I:COMP | NASDAQ COMPOSITE INDEX | 17592.126516 | -91.85 | -0.52% |
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Stocks rallied on the news, pushing the S&P 500 above 5,200 for the first time, on the view that rate cuts remain on the table. All three of the major averages are sitting at records.
The decision, which was widely expected, keeps the federal funds rate between a range of 5.25% to 5.5%, a 22-year-high. This will also keep rates for mortgages, loans and credit cards at elevated levels.
The CME’s FedWatch Tool had expected as many as six rate cuts at the start of the year, but now with three baked in, the Federal funds rate would be at 4.6% by year's end.
CONSUMER INFLATION HOTTER THAN EXPECTED IN FEBRUARY
Inflation has not subsided as quickly as policymakers had expected. In February, consumer prices on an annual basis rose 3.2%, above economists' projections, with prices for items like rent, beef and juices and drinks rising 5.8%, 9.2% and 27%, respectively. A separate report showed that producer prices rose 1.6% last month on an annual basis, also more than expected.
"We don't know if this is a bump in the road or something more," said Federal Reserve Chairman Jerome Powell during his Q&A following the decision, while he reiterated the committee will remain data-dependent.
While consumer inflation is down from its peak of 9.1%, it remains above the Fed's 2% mandate.
U.S. NATIONAL DEBT TRACKER
Oil prices have also started to tick up, with West Texas Intermediate crude hovering above $80 per barrel, while Brent prices, the global benchmark, are near $86 a barrel.
| Ticker | Security | Last | Change | Change % |
|---|
| USO | UNITED STATES OIL FUND L.P. | 69.84 | -0.05 | -0.07% |
| BNO | UNITED STS BRENT OIL FD LP UNIT | 28.12 | -0.04 | -0.14% |
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The average price for a gallon of regular gasoline is $3.52, up from $3.44 a year ago, according to AAA.
Last week, Treasury Secretary Janet Yellen said in an exclusive interview with FOX Business that she regretted prior comments characterizing inflation as being "transitory," and while she noted prices are easing, the decline may not be "smooth."
YELLEN: INFLATION DECLINE MAY NOT BE SMOOTH
FOX Business' Megan Henney contributed to this report.
FAQs
The central bank kept the federal funds rate — or what banks charge each other for short-term loans — in a range of 5.25% to 5.5%. It has remained at that level, the highest in 23 years, since July of 2023.
What does it mean for the Fed to cut interest rates? ›
First, it means companies can borrow debt for less money and reinvest it to make the business more profitable. Second, lower rates mean savings accounts and some other kinds of investments become less attractive, so investors tend to move their money towards things like stocks.
How many times will the Fed cut rates in 2024? ›
Outside of Wednesday's jumbo 50 basis point cut, the Fed has moved in 25 basis point increments over the last year or so, indicating the central bank expects to cut interest rates two more times in 2024.
What happens to the stock market if the Fed cuts rates? ›
The stock market's reaction to the Fed's rate cut is less predictable, because in the short-run it will hinge on whether the Fed's move is seen as locking in a soft landing, or a sign that the central bank is behind the curve and could crash the economy.
What do unchanged interest rates mean? ›
The Fed's decision to keep rates steady means the cost of borrowing isn't likely to get cheaper anytime soon. U.S. stocks had hit recent highs partly on expectations that the Fed would soon cut rates, making it less expensive for businesses to borrow and expand their services.
When was the last time the Federal Reserve lowered interest rates? ›
The Federal Reserve slashed its benchmark interest rate by half a percentage point, the first and the biggest cut since March 2020 when COVID-19 was hammering the economy. The cut amounts to a declaration of victory over inflation, which has come down from a peak of 9.1%
How many rate cuts are expected in 2025? ›
We also maintain our call for 125 basis points of interest rate cuts in 2025, with the fed funds rate target landing at 3.00 to 3.25 percent by December 2025, versus the SEP projection of 100 basis points of cuts or a target range of 3.25 to 3.50 percent by end-2025.
Will interest rates go down in end of 2024? ›
Mortgage rates are expected to continue trending down through 2024 and into 2025, and we could see rates drop further into the 5% range.
What is the interest rate forecast for the next 5 years? ›
Projected Interest Rates In The Next Five Years
ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter. Then, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.
Are rate cuts good for stocks? ›
Reductions in short-term interest rates should be a boon for dividend-paying stocks, particularly in the financial sector, as lower rates reduce the cost of funding for banks. Other beneficiaries include public companies that would benefit from cheaper debt financing and lower interest rates.
The relationship between interest rates and gold prices has historically been inverse, with lower rates typically supporting higher gold prices. So, as the Federal Reserve prepares to cut rates, many analysts maintain a bullish outlook on gold.
Will the stock market crash if the Fed raises interest rates? ›
Do interest rate hikes hurt the stock market? If the Federal Reserve raises the short-term federal funds target rate it controls (as it did in 2022 and 2023), it can have a detrimental effect on stocks. A higher interest rate environment can present challenges for the economy, which may slow business activity.
What interest rate doesn't change? ›
The interest rate on a fixed-rate loan remains the same during the life of the loan. Because the borrower's payments stay the same, it's easier to budget for the future.
How many times a year does the Fed change rates? ›
The FOMC sets the target federal funds rate eight times a year, based on prevailing economic conditions. The federal funds rate can influence short-term rates on consumer loans and credit cards.
What rates are the Feds holding? ›
The Fed lifted its benchmark interest rate to slow the economy after inflation surged, and has held it steady in the current 5.25%-to-5.50% range since last July, making the current run of tight monetary policy among the longest in recent decades.
What is the current Fed interest rate? ›
"We made a good strong start and I am very pleased that we did," Powell said at a press conference after the Fed, noting its increased confidence that the country's bout with high inflation was over, reduced its benchmark policy rate by 50 basis points to the 4.75%-5.00% range.
