US Fed "Maintains Three Rate Cuts This Year"... Dovish Powell Sends New York Stock Market Soaring (Summary)

March FOMC Maintains Outlook for Three Rate Cuts This Year
Powell: "Inflation Gradually Easing... Rate Cuts Appropriate This Year"
June Cut Expectations Spread... US Top 3 Indexes Hit Record Highs

The U.S. central bank, the Federal Reserve (Fed), kept the benchmark interest rate unchanged for the fifth consecutive time and hinted at the possibility of cutting rates three times this year. Initially, the market expected the Fed to shift direction and cut rates twice this year due to hotter-than-expected inflation, but the Fed maintained its previous forecast of three rate cuts. However, it signaled that after cutting rates this year, the pace of reductions would be more gradual than expected starting next year. Investors welcomed the dovish tone of the March FOMC, leading the three major New York stock indexes to simultaneously hit record highs.

Fed Holds Benchmark Rate Steady for Fifth Time... Maintains Forecast of Three Cuts This Year

On the 20th (local time), the Fed announced after the regular FOMC meeting that it would unanimously keep the federal funds rate at 5.25?5.5%. This marks the fifth consecutive hold following decisions in September, November, and December last year, and January this year, maintaining a 2 percentage point gap at the upper bound compared to South Korea. The Fed stated in its policy statement, "Recent indicators suggest that economic activity is expanding at a solid pace," and explained, "It is not appropriate to reduce the target range until there is greater confidence that inflation is moving sustainably toward 2%." There were no notable changes compared to the January FOMC policy statement.

Since the market had already anticipated the rate hold, the main focus of this FOMC was the dot plot showing rate projections. The Fed maintained the year-end rate forecast at 4.6% (median), unchanged from before. This implies the possibility of three 0.25 percentage point cuts within the year from the current 5.25?5.5% level. Despite the Consumer Price Index (CPI) and Producer Price Index (PPI) exceeding market expectations for two consecutive months in January and February, the Fed did not revise its rate cut forecast for this year. However, it adjusted the rate cut outlook for next year and the year after. The year-end 2025 rate forecast was raised from 3.6% to 3.9%, and the year-end 2026 forecast was increased from 2.9% to 3.1%. This suggests that the pace of rate cuts after next year may be slower than initially expected. The rate forecast beyond 2026 was raised by 0.1 percentage points to 2.6%. This indicates that the 'neutral rate,' which neither stimulates nor restricts economic growth, may rise slightly.

Additionally, the Fed significantly raised its GDP growth forecast for this year from 1.4% to 2.1%. Inflation, based on the core Personal Consumption Expenditures (PCE) price index, is expected to reach 2.6%, up 0.2 percentage points from the previous forecast. The unemployment rate was lowered from 4.1% to 4%. While expecting strong U.S. economic and employment conditions, the Fed does not foresee a significant surge in inflation.

Powell: Inflation Gradually Easing... Rate Cuts Appropriate This Year

Fed Chair Jerome Powell reaffirmed the plan to cut rates this year during a press conference following the FOMC, emphasizing that the Fed is not overly reactive to the early-year inflation rise.

Powell said about recent price increases, "Inflation has not changed the overall story that it is gradually slowing toward 2% along a sometimes bumpy path," and assessed, "We continue to see good progress in reducing inflation." Despite some market concerns that the number of rate cuts this year might decrease, Powell judged that while inflation may temporarily be high, the trend of slowing inflation has not changed.

However, he added, "Inflation remains above the long-term target of 2%, and the easing process is not smooth," and said the Fed is looking for additional evidence that inflation is slowing toward the 2% target.

Powell also stated, "It is likely that the policy rate has peaked in this cycle," and "It will be appropriate to reverse policy restraint at some point this year." He expressed the view that a strong labor market would not delay the timing of rate cuts. He said, "The labor market itself does not raise concerns about inflation," and "Strong employment alone is not a reason to delay rate cuts." He emphasized the need for policy responses to unexpected labor market weakening.

Furthermore, he hinted at slowing the pace of quantitative tightening. He said, "We discussed reducing the pace of asset portfolio runoff at this meeting and reached a consensus that it would be appropriate to slow down soon," adding, "This does not mean balance sheet reduction will stop but allows a more gradual approach to the ultimate level." Quantitative tightening, known as balance sheet reduction, is a measure where the Fed absorbs liquidity by selling bonds it holds or not reinvesting after maturity.

'Dovish Powell' Spurs June Rate Cut Expectations... U.S. 3 Major Indexes Hit Record Highs

Due to the more dovish-than-expected FOMC and Powell's message, market expectations for a rate cut in June are spreading rapidly. According to the Chicago Mercantile Exchange (CME) FedWatch, federal funds futures on that day priced in over a 74% chance of a 0.25 percentage point rate cut at the June FOMC, a significant rise from about 59% the previous day.

The New York stock market saw all three major indexes hit record highs amid rate cut expectations. On the New York Stock Exchange (NYSE), the blue-chip Dow Jones Industrial Average closed at 39,512.13, up 401.37 points (1.03%) from the previous session, breaking its all-time high. The large-cap S&P 500 rose 46.11 points (0.89%) to 5,224.62, and the tech-heavy Nasdaq increased 202.62 points (1.25%) to 16,369.41, also reaching record highs. All 'Magnificent 7' tech stocks rose. Bond yields fell amid pivot expectations. The U.S. 2-year Treasury yield, sensitive to monetary policy, dropped 8.1 basis points (1 bp = 0.01 percentage point) to 4.602% from the previous day. The U.S. 10-year Treasury yield, a global bond yield benchmark, fell 2 basis points to 4.273%.

Societe Generale's chief U.S. rates strategist said, "Despite strong growth and high inflation, the Fed still seems tilted 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." Chris Zaccarelli, Chief Investment Officer (CIO) of Independent Advisor Alliance, said, "The 'no news is good news' press conference was a green light for the market to continue rising," and predicted, "The Fed will not hinder the bull market."

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