13
June 2024
Fed holds rates steady for the seventh consecutive time
Adriaan Pask
Chief Investment Officer, PSG Wealth
Event
The US Federal Reserve (Fed) kept its federal funds rate at a range of between 5.25% and 5.50% for the seventh
consecutive meeting on 12 June May 2024, in line with expectations.
- The dot-plot projections indicated only one 25 basis point rate cut this year, in contrast to the previous forecasts of three cuts and four cuts in 2025, which is more than the earlier forecast of three cuts. The recent statements from the Fed suggest that policymakers are aiming for increased assurance that inflation is on a path towards the 2% target. Powell noted that while the specifics are not entirely defined, the Fed has not reached that point yet.
- Click here to download the latest Federal Open Market Committee (FOMC) statement
The Impact
- Wednesday saw an increase in US markets as investors processed the FOMC interest rate decision and Powell's remarks. The S&P 500 and Nasdaq Composite traded in positive territory at 0.85% and 1.53% respectively, while the Dow decreased 0.09% following Powell’s remarks.
- The US Dollar Index, which gauges the value of the currency against a basket of six currencies, came in at 104.79 points on Thursday morning.
- The 5-year US Treasury yield rose to 4.32%, while the yields for the 10-year and 30-year notes came in at 4.32% and 4.48%, respectively.
The Assessment
- The Fed finds itself in a difficult position: if they cut rates prematurely, they risk letting the inflation genie out of the bottle, but keep rates too high for too long and economic pain downstream will be more severe.
- In our view, the harm from a higher interest rate environment is yet to bite and we are likely to see more economic strain from the 2022/23 hikes in 2024.
- We are mindful of the impact of a very tricky interest rate cycle on our portfolios and continue to monitor these events closely.
- The next interest rate decision will be announced on Wednesday, 31 July 2024.