Federal Reserve Holds Policy Steady, Says Progress on Inflation Has Stalled

BY Coindesk | ECONOMIC | 05/01/24 02:08 PM EDT By Stephen Alpher

As expected, the Federal Open Market Committee of the U.S. Federal Reserve on Wednesday left its benchmark fed funds rate range unchanged at 5.25-5.50%.

Also pretty much as expected, the FOMC acknowledged that progress on lower inflation has stalled this year and said it wouldn't be appropriate to trim rates until it has greater confidence inflation is moving "sustainably" towards 2%.

The price of bitcoin {{BTC}} has bounced modestly in the minutes since the news hit, but remains under pressure, down more than 4% for the session at $58,000.

In addition to the rate news, the FOMC announced it is slowing the reduction of Treasuries held on its balance sheet ? the so-called quantitative tightening (QT) ? from $60 billion per month to just $25 billion per month. Other things being equal, the move is likely to boost risk appetite and asset prices, wrote economist Joseph Brusuelas.


Markets came into 2024 expecting a long series of rate cuts from the U.S. central bank, but those hopes have been whittled down sharply over the past few weeks as the economy continues to show strength and inflation has actually risen a bit in the year's first four months. According the CME FedWatch tool, markets (prior to today's Fed decision) were pricing in a nearly 25% chance of zero rate cuts this year. One month ago, there was just a 1% chance of no Fed easing in 2024.

That change in expectations has weighed a bit on traditional markets, with the Nasdaq lower by about 5% since hitting its 2024 high about three weeks ago and the S&P 500 off by a similar amount since touching its year-to-date high in late March. It's also likely contributed to the plunging bitcoin price, which is now down more than 20% from its record high from mid-March above $73,000.

A check of traditional markets shortly after the FOMC announcement, finds stocks remaining little-changed and the dollar and bond yields slightly lower. Gold is up 0.5% at $2,316 per ounce but remains about 4% down from its record high above $2,400 hit in mid-April.

Further clues to the Fed's thinking will come shortly as Chairman Jerome Powell will hold his post-meeting press conference at 2:30 p.m ET.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

fir_news_article