Fed keeps rates unchanged and rules out March rate cuts but remains optimistic on overall positive outlook

Federal Reserve kept interest rates unchanged at 5.25%5.50% range, in their first policy meeting in 2024, as widely expected, but disappointed markets by comments that inflation is still elevated, and that March rate cut is unlikely.

The central bank’s Chairman Jerome Powell, in his speech after the end of two-day policy meeting, said that the economy remains resilient and inflation is easing, also expecting economic growth to continue, but pointed to still elevated inflation, which conflicts with strong hopes for the first rate cut in March meeting.

The US policymakers remain cautious and declined to declare victory in Fed’s battle with inflation in past two years and said that the work in bringing inflation to desired levels is not over yet, despite confirmation that interest rates had peaked, and the economy avoided bad scenarios by the soft landing.

Powell highlighted that rate cuts would not be appropriate until the central bank gets convinced that inflation is moving towards 2% target, suggesting that this should happen soon, if current favored economic conditions continue.

Markets shifted their expectations for rate cuts to May meeting after the Fed ruled out a cut in March, expecting that overall situation will improve further and set the stage for start of monetary policy easing, after the central bank kept interest rates at a multi-decade highs since last July.