Interest rates are not expected to change at the U.S. Federal Reserve’s March meeting. However, rate cuts are expected in 2024 and the market will be looking for clues on the timing.
March Fed Meeting Announcement Timing
The Federal Open Market Committee will meet March 19-20, announcing the target Fed Funds rate on March 20 at 2p.m. ET. The current target ranges for the Federal Funds rate is 5.25% to 5.5% and that is not expected to change.
Then at 2:30p.m. ET. Federal Reserve Chair Jerome Powell will hold a press conference, providing greater context on the Fed’s thinking and taking questions. In addition, policymakers will update their Summary of Economic Projections, including a set of forecasts, often termed a “dot plot” estimating where rates will be at the end of 2024. Three weeks after the meeting on April 10, the Fed is expected to release the minutes of the March meeting.
All of this will be closely watched by fixed income markets, which are currently implicitly forecasting rate cuts to being in June or July and for three or four interest rate cuts to occur in 2024 according to the CME FedWatch Tool.
Fed Comments On Monetary Policy
Recent statements from Fed officials have suggested that interest rates are unlikely to increase from current levels and that interest rate cuts could be coming soon, but are not imminent.
Chair Powell said in Congressional testimony on March 6, “We believe that our policy rate is likely at its peak for this tightening cycle. If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year.”
Fed Governor Michelle Bowman struck a slightly more hawkish tone on a March 7 speech, saying, “Should the incoming data continue to indicate that inflation is moving sustainably toward our 2 percent goal, it will eventually become appropriate to gradually lower our policy rate to prevent monetary policy from becoming overly restrictive. In my view, we are not yet at that point. Reducing our policy rate too soon could result in requiring further future policy rate increases to return inflation to 2 percent over the longer run.”
Inflation Trends
Inflation has declined from peak levels, but has not reached the Fed’s 2% annual target. The most recent Consumer Price Index report for February showed 3.2% annual inflation. The Fed often prefers the Personal Consumption Expenditures Price Index, that showed annual inflation of 2.4% for January and will be updated for February on March 29, after the Fed meets.
One concern is that despite inflation slowing materially from peak levels, recent data implies that inflation in early 2024 may be accelerating somewhat. For example CPI inflation rose at a 0.3% monthly rate in January and 0.4% in February. Both readings are relatively high compared to the past 12 months. Broadly speaking, the Fed would need to see monthly inflation of approximately 0.1% to 0.2% to meet its 2% target. Still, inflation is now well below the peak levels seen in 2022.
The Fed is watching the data, and is hoping to have confidence that inflation is on course to return to their 2% goal before they commit to rate cuts. Current concerns about reaccelerating inflation may be short-lived. That’s because CPI nowcasting from the Atlanta Fed suggest that inflation for March may come in closer to 0.2%.
Jobs Data
The jobs market has generally held up better than expected despite elevated interest rates. February’s Employment Situation Report did see a rise in the unemployment rate to 3.9% but job creation remains relatively robust. This has encouraged the Fed to be patience in considering rate cuts for two reasons.
Firstly, as the job market remains relatively strong that can contribute to inflation as wage costs are passed on in prices. For example, wage costs are currently estimated to be rising at 5% according to the Atlanta Fed’s Wage Growth Tracker. Secondly, weakness in the jobs market, may be a recession signal and could encourage the Fed to cut rates to avoid a painful recession. So far, that risk has been less of a concern.
What To Look Expect
The FOMC is highly unlikely to adjust interest rates at their March meeting, but clues to the Fed’s expectations for the timing and extent of interest rate cuts in 2024 will be closely monitored by markets.