The US Federal Reserve left interest rates unchanged at 5.25 to 5.5 percent at this week's meeting.
The widely anticipated move came after the central bank's second gathering of 2024, held from Tuesday (March 19) to Wednesday (March 20). The Fed has hiked rates 11 times since March 2022, but this is its fifth pause in a row.
Looking forward, investors are watching closely to see if the Fed will be able to engineer a soft landing. Although inflation ticked up slightly in February, job growth is looking solid, so many market participants believe it's feasible.
Market participants are also keen for clues on when the Fed will cut rates. Its new dot plot, which shows where each official thinks the federal funds rate is headed, shows three cuts of 0.25 percent each are penciled in for 2024.
“Strong hiring in and of itself would not be a reason to hold off on rate cuts. No, not all by itself,” Powell said after the meeting, although he made no promises that inflation will be tamed in the near term. “Markets believe we will achieve that goal and they should believe that because that's what will happen over time, but we stress over time,” he explained.
CME Group's (NASDAQ:CME) FedWatch tool currently shows more than a 90 percent probability that the Fed will leave rates unchanged at its May gathering, and a 73.1 percent likelihood of a cut in June.
Powell said the Fed is still on the lookout for "more good data" to solidify such a decision.
Markets and gold react to Fed decision
US markets reacted positively to the Fed's announcement, with the Dow Jones Industrial Average (INDEXDJX:.DJI) rising to a record close of above 39,500. Meanwhile, the S&P 500 (INDEXSP:.INX) passed 5,200 for the first time ever, and the Nasdaq Composite (INDEXNASDAQ:.IXIC) climbed by 1.25 percent to reach 16,369.41.
“We had some inflation bumps this year but Jerome Powell’s not blinking,” said David Russell, global head of market strategy at TradeStation, told CNBC. “Investors are relieved to see three cuts stay in the dot plot, supporting markets and risk appetite. The Fed might wake up with a hangover, but the punchbowl isn’t going away yet.”
The gold price also took off after the Fed's decision, jumping from just above US$2,155 per ounce to more than US$2,200. The yellow metal tends to fare better when rates are lower, and it was also supported by a weaker US dollar.
Many experts focused on gold believe it's poised to move higher. The broad consensus is that the mainstream expectation for a soft landing won't pan out, and gold will thrive once it becomes clear that other areas of the economy are suffering.
"At this point, people who believe in the soft landing, people who believe in the tooth fairy — they simply cannot ignore that the economy is slowing," Adrian Day, president of Adrian Day Asset Management, told the Investing News Network at the Prospectors & Developers Association of Canada convention in March.
The gold price closed Wednesday at US$2,185.80.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
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