Following its March meeting, the Fed announced its unanimous decision to keep the monetary policy rate unchanged at a range of 5.25-5.5%, completing the fifth consecutive meeting with no rate movement, keeping it at its highest level in 23 years.This completed the fifth consecutive meeting without a rate move, keeping it at its highest level in the last 23 years. The announcement was in line with what was widely expected by the market.

On this occasion, the Fed also presented an update of its medium-term macro and monetary policy outlook. Precisely, the dot plot chart indicating the view of each of the FOMC members regarding rate levels, indicates that they continue to point to three rate cuts, each of 25 bp, in the remainder of the year. This is similar to what was stated in last December's projections, but this time there is a greater focus on this three-cut option.. The chart also indicates three cuts in 2025, one less than in December, and three more reductions in 2026. Thus, the FFR is expected to stand at 4.6% at the end of this year, 3.9% at the end of next year and 3.1% by the end of 2026.

On the macro projections side, growth estimates were raised from 1.4% to 2.1% for 2024, from 1.8% to 2.0% for 2025 and from 1.9% to 2.0% for 2026. As for inflation forecasts, these remained unchanged for 2024 at 2.4%, but were increased for 2025 from 2.1% to 2.2%, and for 2026 the projected 2.0% was also unchanged. Core inflation is projected higher this year at 2.6% versus 2.4% in December, while forecasts were left unchanged for 2025 and 2026 at 2.2% and 2.0%, respectively. For the unemployment rate, the expectation was cut to 4.0% in 2024 from 4.1% previously, but the projection was maintained at 4.1% for next year.

Regarding future rate moves, Powell, the Federal Reserve Chairman, indicated that, if the economy evolves as expected, it would be appropriate to begin the process of rate cuts at some point this year. He also noted that any move - both early and late - on the rate may generate undesired effects on activity and employment, so it is necessary to carefully consider the balance of risks and that, therefore, the committee will continue to evaluate based on a greater conviction that the process of reducing inflation towards the 2.0% target is sustainable.

With regard to the recent higher than expected inflation data, it was pointed out that are not particularly worrisome or alter the monetary policy expectation, but are part of the reasons why they remain cautious when making decisions.

Prior to today's meeting, the market was expecting a greater likelihood of the start of the cutback process around June, which - in light of the day's data and announcements - is likely to be maintained. For our part, we continue to see mid-year as the likely timing for a change in the Fed's policy stance.

Following the press release, the stock markets reacted upward and the U.S. stock markets closed at record highs. The S&P 500 rose by 0.89% and the Dow Jones rose by 1.03%, while the Nasdaq reported a rise of 1.25%, approaching its all-time high of February 26. Meanwhile, Treasury rates moved lower with the Tr 10y down to 4.27% and the Tr 2y moving to 4.60%. The dollar, which had moved higher on the day, corrected lower to 103.4 after the announcements.

Milene Rodriguez

Strategy and Investment Analyst