Powell: "Inflation Slowing... Rate Cut Appropriate This Year"‥New York Stock Market Hits Intraday High (Update)

"Inflation Exceeds 2% Target but Continues Positive Progress"
Fed Maintains Forecast of 3 Rate Cuts This Year
New York Stock Market's 3 Major Indexes Reach Intraday Highs Together

"Recent two rounds of hot inflation have not shaken our confidence that prices will cool down. We believe it will be appropriate to reverse policy tightening at some point this year."

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), reaffirmed the plan to cut interest rates this year. At the second Federal Open Market Committee (FOMC) meeting this year, the Fed kept interest rates unchanged for the fifth consecutive time and maintained its forecast of three rate cuts this year. Investors, who had feared the Fed might reduce the number of rate cuts from three to two due to more persistent inflation than expected, welcomed the news, and the three major indices of the New York Stock Exchange all reached record highs during the session.

At a press conference held immediately after the March FOMC regular meeting on the 20th (local time), Chairman Powell stated, "It is highly likely that the policy rate has peaked in this cycle." He added, "Inflation still exceeds the long-term target of 2%, and the easing process is not smooth," but evaluated, "We continue to make good progress in lowering inflation."

At this meeting, the Fed kept the federal funds rate unchanged at 5.25?5.5%. This marks the fifth consecutive hold following decisions in September, November, and December of last year, and January of this year. The interest rate gap with South Korea was maintained at 2 percentage points at the upper bound.

The key focus of this FOMC was the dot plot showing rate projections. Due to sticky inflation confirmed in January and February, the market speculated that the Fed might reduce the number of rate cuts this year from three to two. This was because the Consumer Price Index (CPI) and Producer Price Index (PPI) exceeded market expectations for two consecutive months.

In the newly released dot plot, the Fed maintained its year-end rate forecast at 4.6%, unchanged from before. This implies the possibility of three 0.25 percentage point rate cuts from the current 5.25?5.5% level. However, the number of cuts was revised from four to three in 2025, and from three to five in 2026. After 2026, rates are expected to fall to 2.6%. Since the Fed maintained its forecast of three rate cuts this year and Chairman Powell did not show much concern about the inflation rise in January and February, the market interpreted this as dovish (favoring monetary easing).

Additionally, Chairman Powell expressed the view that a strong labor market would not delay the timing of Fed rate cuts. He said, "The labor market itself cannot raise concerns about inflation," and "Strong employment alone is not a reason to delay rate cuts." He also emphasized, "Policy responses will be needed for unexpected labor market weakening."

Prior to Powell’s press conference, the FOMC policy statement released did not contain content that would raise market concerns. It only included the fundamental stance that cautious rate cuts are necessary, as Fed officials have repeatedly emphasized.

In the policy statement, the Fed said, "Recent indicators suggest that economic activity is expanding at a solid pace," adding, "Job gains remain strong, and the unemployment rate is still low. Inflation has eased over the past year but remains elevated." It further explained, "When considering adjustments to the target range for the federal funds rate, we will carefully assess incoming data, evolving outlooks, and risk balance," and "It is not appropriate to reduce the target range until we have greater confidence that inflation is moving sustainably toward 2%."

The Fed also updated the Summary of Economic Projections (SEP), which is released quarterly and includes GDP, inflation, and unemployment forecasts. The GDP growth forecast for this year was significantly raised from 1.4% to 2.1%. The unemployment rate was lowered from 4.1% to 4%. Inflation, based on the core Personal Consumption Expenditures (PCE) price index, which the Fed closely watches, is expected to reach 2.6%, up 0.2 percentage points from the previous forecast.

With the Fed maintaining its forecast of three rate cuts this year, the New York Stock Exchange indices all touched record highs during the session. The Dow Jones Industrial Average, composed of blue-chip stocks, was up 0.97% as of 3:39 p.m. S&P 500 and Nasdaq indices were also up 0.82% and 1.18%, respectively. Treasury yields declined. The U.S. 2-year Treasury yield, sensitive to monetary policy, traded at 4.626%, down 6 basis points from the previous session. The U.S. 10-year Treasury yield, a global bond yield benchmark, hovered around 4.271%, down 1 basis point from the previous day.

The chief U.S. rate strategist at Societe Generale said, "Despite strong growth and high inflation, the Fed still seems inclined toward cuts," adding, "The Fed is looking at the long-term trend of inflation rather than monthly changes, and if inflation is generally moving in the right direction, it appears willing to cut rates."

This content was produced with the assistance of AI translation services.