Fed Keeps Rates Unchanged Again. Are Future Rate Cuts Coming?

By Tyler Griffin ’24

Contributing writer

The Federal Reserve (Fed) plays a pivotal role in guiding the economy towards steady growth and stable prices. The Fed has many tools at its disposal in order to accomplish its set target goals. Its most useful tool is the ability to adjust interest rates. The Fed will hold a meeting eight times per year to announce their decision on where to set interest rates. Recently, the Fed has been reluctant to change the interest rates from its peak levels reached in 2022. The 5.25% to 5.5% range was reached in order to combat overheating inflation rates, and has since worked to bring the inflation levels back down to a manageable 3.2%, the figure from the 12 months ending in February. However, this is up from the previous report in January where inflation was actually lower at 3.1%. While this is not necessarily a significant difference on paper, the Fed has to remain very cautious and concerned moving forward that inflation has ticked back up. The Fed clearly still has much more work to do to reach its 2% target goal. 

How does the Fed interest rate impact the economy?

By implementing monetary policy, namely, changing the federal interest rate, the Fed can manipulate economic activity through the transmission mechanism. By announcing their actions regarding the interest rate, it can have numerous different effects on the overall economy. The mechanism is characterized by the notion that changing rates leads to changes in short-term/long-term market rates, market expectations, and asset prices. By doing so, the market can experience a change in demand through the alteration of consumption and investment spending. From there, the changes in demand and spending can sway the economy towards increasing or decreasing inflation. The significant sphere of influence the Fed holds with the interest rate makes it all the more important that they manage expectations carefully. Most times, the expectations of the markets regarding the Fed interest rate decisions can greatly dictate market activity, and thus the direction of the economy. 

The Recent Fed Decision

The second Federal Open Market Committee (FOMC) meeting of the year was held on March 20, the Fed and Chairman Jerome Powell, once again, reiterated their main target goal of reducing inflation sustainably back down to the 2% target rate. Powell and the Fed attribute this decision to persistent inflation figures, and remain cautious as to whether or not their battle with inflation is close enough to over. At the onset of his speech, Powell emphasized his cautious optimism: “Inflation has eased substantially while the labor market has remained strong, and that is very good news. But inflation is still too high, ongoing progress in bringing it down is not assured, and the path forward is uncertain. We are fully committed to returning inflation to our 2% goal.” It is important to note that the dual mandate has remained the main objective for the Federal Reserve since 1977. The dual mandate suggests that the role of the Fed is “to effectively promote the goals of maximum employment, and stable prices.” Going forward, Powell has finally commented on the future direction of the Federal interest rates, yet still with no clear answer. Still, this should still be exciting to many investors who are awaiting an interest rate cut to spark another rally in the stock market. Powell stated in his speech: “We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. The economic outlook is uncertain, however, and we remain highly attentive to inflation risks. We are prepared to maintain the current target range for the federal funds rate for longer, if appropriate.” Projecting forward, Powell said that if the economy tracks according to their projections, then rates could be cut to 4.6% by the end of year, signaling for around three cuts. This aim aligns with many economist projections at the beginning of the year that three cuts would be coming this year. Yet, as always, Powell remains cautious. If the economy were to deviate from its projected course, then we would have to pivot to a different plan of action, and the three rate cuts might never materialize. Additional CPI reports that have come out recently have further tempered expectations for more cuts. The CPI figures in March have reportedly continued the reversal of trends, coming in at 3.5% year-over-year in comparison to the 3.2% figure from February that was shared earlier. This is extremely important because it shows just how difficult inflation is to manage for the Fed. Additionally, it shows how short, medium, and long-term interest rates can react differently when the Fed makes decisions regarding the Federal Funds Rate. The Federal Funds rate has the ability to impact many other interest rates within the market (loans/credit/etc.) and thus changes the cost of borrowing for market entities. The Fed has chosen to keep rates high for some time now in order to discourage overheating and bring down inflation. While that mechanism has worked up until this point, the inflation figures have reversed course again, which could prove to be a red flag for the Fed. If inflation keeps trending in this direction, the Fed will have to postpone their ability to lower interest rates. 

Dual Mandate 

As emphasized by Chairman Powell, it is important to recognize that the Fed operates with the two-fold goal of providing maximum employment and stable prices for the American people (as it is stated every meeting by Powell). I think that the dual mandate had a lot to do with the Fed’s decision to hold the interest rate at its current level, and it is justified. The Fed is more comfortable playing the waiting game, in order to see more conclusive data whether or not their restrictive monetary policy is having a profound effect on the economy, and hopefully, they will get that data. Chair Powell alluded to the potential for rate cuts finally coming this year, and Fed will have six more weeks of data to analyze before the next FOMC meeting on April 30. While inflation has been coming down, the rate at which it is slowing has eased a bit, and even ticked back up recently. According to data shared by Powell over the last 12 months ending in February, total PCE rose 2.5% and core PCE rose 2.8%, which excludes the volatility of food and energy prices. This signifies, that this side of the market is still not reacting as it should to higher interest rates, namely that no recession is materializing. Sticky inflation is persisting and if this problem should remain in the next meeting, the Fed will have to retract its plan to lower future rates. In economics, we call this a low sensitivity to interest rates. This basically means that despite the decision to leave interest rates high, consumers and investors are not as quick to negatively react in the market. This goes hand in hand with policy lags. Policy lags are defined by the period of time it takes for the effects of a change in policy to be felt in the real-world markets. In theory, the policies begin to work instantly, but we cannot interpret the hard evidence of an economic policy at work until about six to 12 months later. This timeline puts us right in the middle of the policy lag from when the Fed last raised interest rates in July 2023. Using this logic, we can make sense of the Fed decision to extend the waiting period even further. In the days following the meeting, it was reported by the Bureau of Labor Statistics (BLS) that the economy added 275,000 jobs in February— which was much higher than the expected figure of 198,000 jobs. This is important because it shows that the jobs market is way ahead of the stabilization of inflation. While employment figures signal a growth economy, it conflicts with the Fed’s main concern of bringing inflation down. This conflict is exactly why Powell’s decision to leave rates unchanged makes sense. At this moment, it is hard to predict where the economy will go next because the dual mandate goals itself are conflicting with each other. While the economy may seem to be in a much better place than expected, Powell is reluctant to begin cutting rates too soon in fear that inflation will continue to persist as a result. Additionally, the rise of inflation began with supply-side issues during the pandemic rather than simply consumer demand. Some of the supply-side constraints included supply-chain issues, decreased transportation time, and shifts in sectoral demand. This has made it extra challenging for the Fed to grapple with inflation because they are limited, through the Fed interest rate, to only being in control of demand-side issues. This notion further provides the Fed with good reason to guide the market carefully towards lowering inflation. Any rash decision may prove to be detrimental to the economy as a whole. Despite the fact that we all want to see interest rates be lowered, it is the smarter move to sit and wait until further data can confirm that the interest rates are altering market behavior. Specifically, the Fed would like to see that the job markets start cooling down a bit (while still remaining strong) and consumer spending to follow suit in order to continue to bring prices and inflation rates lower. Only then, will the Fed feel comfortable in bringing down rates and re-stimulate the economy into growth mode. 

Market Reaction

Following Powell’s announcement at the meeting, the major market indices collectively ended the day lower. The NASDAQ, S&P500 and DOW, closed up 0.94%, 0.63% and 0.73%. This reaction goes to show how excited the market was that Powell commented on the potential for future rate cuts, holding his plan to cut three times during the year. As far as a rate cut in the next FOMC meeting in April, that still seems pretty unlikely due to the fact that inflation has remained sticky. According to Forbes and CME Group, markets are only pricing in a 7% chance that rates will get cut in the next meeting. I think that this is a pretty accurate estimation considering the chances are pretty low, we have seen time and time again how cautious and firm Powell is willing to hold to ensure the softest landing possible. It will be a tough road for the Fed to navigate as they try to keep the economy strong and growing while trying to combat inflation at the same time. Investors jumped at the thought of rate cuts and were pleasantly surprised by the indications made. However, the stock market may not fully understand the uncertainty that still surrounds inflation and the economy. Although it was reiterated that the plan to cut rates still remains, there is growing skepticism that it will remain the case for the rest of the year. Some analysts are predicting only 1-2 cuts or maybe even none at all. In my opinion, this reaction by the market was in line with how I would have predicted. The market is always quick to jump on any bit of news it gets, and Powell gave them more than in the previous meeting this time around. Thus, it was reflected positively in the market. But, once again, the Fed will not be making any promises that the market will play out how we all hope. It is easy to understand the frustration surrounding uncertainty, however, as economists and investors in the market, we should be able to understand the mechanisms that guide the Fed’s decisions. We obviously all love when the market can spend more freely, but the importance of our economic conditions cannot be understated. Inflation creates many problems for all American families as it decreases our purchasing power greatly. 

What’s Next?

The Fed will hold its next FOMC meeting on April 30-May 1. Like I mentioned previously in the paper, the Fed will have 6 more weeks of data to analyze before they can make a definitive decision on what to do with interest rates next. The chances of achieving a rate cut by next meeting are slim to none in my opinion. I do not believe that the Fed is anywhere close to where they want the market to be before they enact any rate cuts. We know this because inflation continues to be sticky and the rising PCE and core PCE figures from last month prove to be a major cause for concern going forward, that higher rates may be dampening its impact on prices in the market. Additionally, there are growing skeptics out there that think that three rate cuts this year will not be feasible barring some very positive switches in economic data. I think that we must be highly attentive over the next six weeks to new data figures and headlines regarding the market. The situation is very fluid and can move off course at any point in time. From the Forbes article, it points out that investors are starting to believe that the Fed will not be able to wrangle in inflation without triggering a recession which would make it impossible to lower rates. The New York Fed predicts that there still remains a 58.3% chance of a recession within the next 12 months. Additionally, the CIO at GDS Wealth Management is warning investors to prepare to wait a little longer than expected for the Fed to begin cutting rates. I tend to agree with this statement as I do not see how the Fed can lower rates when inflation seemed to have stopped going down last month with rates remaining unchanged. The Fed’s main purpose is to achieve 2% inflation, not please the stock market. Thus, in seeing that they have not yet come close to satisfying their goal. I think that we must look at data carefully going forward, and prepare to be disappoint in the timing of future rate cuts. 


Asplund, R. Barchart. With headquarters in the heart of Chicago’s financial district. (2024, March 20). Stocks higher after FOMC meeting results. Nasdaq. https://www.nasdaq.com/articles/stocks-higher-after-fomc-meeting-results

Powell, Jerome. Chair Powell’s Press Conference. FOMC Meeting. Page 1. https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20240320.pdf

Powell, Jerome. Chair Powell’s Press Conference. FOMC Meeting. Page 3. https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20240320.pdf

Sommer, J. (2024a, February 1). The Fed is taking it slow. but the markets want more. The New York Times. 

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