The most keenly watched event for stock market investors is undoubtedly the Fed Meeting. Not only does it raise economic projections for economic growth but also how keeping the rate unchanged will affect the economy with inflation still beyond the target range.
Which sectors will get the boost? Not only directly but also through even ripple effect, like mortgage insurance, listing companies and consumer discretionary. Though some sectors respond quickly to any interest rate change, some others have a lagged effect such as mortgages and auto loans.
The US Federal Reserve after a two-day Federal Open Market Committee (FOMC) meeting announced its interest rate decision on Wednesday, March 20, 2024. It left the benchmark interest rates unchanged at 5.25 per cent - 5.50 per cent for the fifth straight meeting.
FOMC members also envisaged the median projection for interest rates at end-2024 at the midpoint between 4.50 and 4.75. Clear signal that they anticipated 0.75 percentage points of cuts before the end of the year, which means three 0.25 percentage point cuts.
The central bank, while keeping the policy rate on hold since July 2023, also updated its economic forecasts. The policymakers upgraded the US growth outlook for this year to 2.1 percent, from 1.4 percent in December.
The investors, who were apprehending that the recent higher-than-expected inflation data would influence the Fed to go back from their projection of three rate cuts for this year, heaved a sigh of relief. This was reflected in the way stock markets surged after the announcement. All three major U.S. indexes ended the day at record highs, their highest closing levels ever for the first time in more than two years. Global markets following soon after.
Fed, while raising the core inflation forecast to 2.6 per cent, remarked that the elevated inflation readings in the first two months of the year had driven its cautious strategy. It remarked that it needs greater confidence of inflation slowing toward its 2% target before resorting to further rate cuts.
Consumer discretionary was the immediate beneficiary, posting the biggest gains among other sectors.
Gold prices that had declined last week after the February macroeconomic data indicating still persistent inflation and warding rate-cut hopes climbed over one per cent. Treasury yields ended mostly lower after Federal Reserve Policy makers left intact a forecast for three rate cuts in 2024.
US Fed Chair Powell-led FOMC is now scheduled to meet on April 30-May 1 when it will deliberate for the next set of policy decisions.
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