In a highly anticipated decision, the Fed chose to maintain the current interest rate in its first decision in 2024, stabilizing the interest rate in the existing range of 5.25%-5.50%. The Fed did mention the possibility of a rate cut during the meeting, but it would not be an immediate measure. Fed Chairman Powell even said at the meeting that there would be no rate cut in March, which did not meet the target of a first-quarter rate cut expected by a few traders. Officials pointed out that it was not appropriate to cut interest rates easily before the long-term inflation target of 2% was reached.
It was the fourth straight meeting without a change in interest rates, which are at a 23-year high, reflecting the central bankâs pledge to start tightening in 2022 to combat rising inflation. However, the focus has shifted to when the Fed might shift to a more accommodative stance.
It is worth noting that the Fed deleted the statement about raising interest rates in this meeting statement, and expressed a positive attitude towards the current inflation. It believes that the current inflation situation in the US economy has gradually cooled down, but more data is needed to confirm that inflation has cooled down.
In addition to maintaining the benchmark interest rate unchanged, the Fed also reiterated that it will continue to reduce its balance sheet by $95 billion per month. "Overall, the Fed's attitude is slowly moving towards "slowly preparing for a rate cut", but the speed will not be as radical as the market expects. It will take at least some time before we see a rate cut. At present, the US economy is still strong, and there is no sign of any banking crisis or high unemployment. The Fed has no reason to cut interest rates."
The Fed's hawkish tone has put the brakes on the rally in U.S. stocks, which had been driven by signs that even the Fed's hawkish members were satisfied with progress on inflation since early December. This seemed to open the door to an immediate rate cut after the Fed's March meeting, but the Fed's meeting statement and Chairman Powell's press conference denied this.
It also had a significant impact on Bitcoin, which was in the process of a price rebound. Once the news was released, Bitcoin quickly fell back to around $42,500.
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As can be seen in the chart below, the market-implied probability of a rate cut at the next meeting in March has fallen to 35%, compared to 73% a month ago.
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