Fed signals higher for longer

The Fed kept interest rates unchanged at 5.25% - 5.5% for the sixth consecutive meeting.

By Nadia Elbilassy | @Nadia Elbilassy | 2 May 2024

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  • Fed maintains rates, signaling prolonged higher rates, Powell dials back on rate hikes.

  • Fed to begin gradual balance sheet reduction next month.

Key pointers from the Fed

As anticipated, the Federal Reserve maintained interest rates unchanged on Wednesday. Powell emphasized that it would require more time than previously anticipated for policymakers to feel confident that inflation will decrease towards their 2% target. Which means higher for longer, Additionally, he expressed skepticism about the likelihood of further rate hikes, providing the reassurance investors were anticipating.

Powell expressed his forecast indicating an overall decline in inflation for the remainder of the year. However, he admitted to a diminished level of confidence compared to before, on the back of the unexpected upward surprises observed in recent months

The Federal Reserve also announced its intention to commence a gradual reduction in its balance sheet, known as the quantitative tightening program, starting next month. This initiative, initiated in 2022, aims to diminish the assets held on the Fed's balance sheet.

Markets are now speculating the possibilities of just one cut this year towards September or December or no cuts at all.

The U.S. dollar retreated after the FOMC decision, whilst stocks ended in the green after choppy trading sparked by mixed expectations regarding cuts.