Stocks surge after Fed indicates three rate cuts still coming this year

Reporters raise their hands to ask Federal Reserve Chair Jerome Powell questions during a news conference in Washington, DC, on March 20.

Wednesday marked Federal Reserve Chair Jerome Powell’s 49th press conference since he assumed the role six years ago. His lengthy tenure showed more than usual.

Powell maintained a straight face throughout most of the briefing, which lasted the usual hour or so. But at times it seemed he was perhaps itching to head for the door.

Here are five moments that stood out:

A reporter asked Powell to provide an update on the central bank’s efforts to potentially develop a digital dollar that would function similarly to cryptocurrency in that there would be no physical version. “I think we’ve been pretty transparent on this, but I will try harder,” Powell responded.

He then proceeded to give the reporter a more lengthy response but asserted that it was “wrong” to say the central bank was working on a digital dollar in a secret lab and they’re “going to spring it on Congress in the right moment.”

Another reporter asked the chair if he was looking for complete unanimity among officials on the rate-setting committee before cutting interest rates. “People do dissent. It’s something that happens. Life goes on. And it’s not a problem — we’ve always had dissents,” Powell replied.

He got a room full of economics reporters to break out into laughter for a brief moment with his response to a question on whether he’d like to “put the genie back in the bottle” to a time when the central bank was less transparent. “Of course… not,” Powell said.

Fed watchers treat every word Powell says like it’s coming straight from the Bible. So naturally when he said the Fed was looking to slow the pace of selling securities “fairly soon” a reporter wanted to know what that meant. But Powell had little to add. “Fairly soon [are] words we use to mean fairly soon,” he said.

US stocks soared to new highs in Wednesday afternoon trading as investors cheered the Federal Reserve’s policy rate decision, economic projections and Fed Chair Jerome Powell’s press conference.

The central bank kept interest rates unchanged but indicated that there would still be three rate cuts this year. Before the meeting, some investors had worried that the Fed would lower that projection.

The S&P 500 reached a new record and topped the 5,200 level for the first time ever, closing 0.9% higher, at 5,224.62.

The blue-chip Dow also reached a record, up 401 points, or 1%, at 39,511.34.

The tech-heavy Nasdaq hit 16,369.41, also a new high.

During the back half of 2023, the Federal Reserve (and all Americans, for that matter) got some welcome news on the inflation front: The pace of price hikes had meaningfully cooled.

But then in January and again in February, things got hot: Inflation rose at its fastest clip in months, thanks in part to rising gas prices, annual seasonal adjustment factors and stubbornly high shelter costs.

Fed Chair Jerome Powell on Wednesday noted that while some “seasonal effects” were likely at play, the central bank is not dismissive of the data. If anything, the initial reports for 2024 reinforce the Fed’s expectations and actions to date, he said.

“It certainly hasn’t raised anyone’s confidence; but I would say that the story is really essentially the same, and that is of inflation coming down gradually toward 2% on a sometimes bumpy path,” Powell said.

He added: “We’ve got nine months of 2.5% inflation now. We’ve had two months of bumpy inflation; it’s going to be a bumpy ride.”

As to whether that ride will get any smoother soon, or is it a sign of inflation turning in the wrong direction: “We will have to find out,” he said, adding that the “economy is strong, inflation has come way down, and that gives us the ability to evaluate this question carefully.”

People walk by the New York Stock Exchange on March 20.

All three major indexes were on pace to close at all-time highs on Wednesday afternoon, as investors cheered the Federal Reserve’s statement that it still expects three interest rate cuts this year.

The S&P 500 gained 0.7%, reaching an intraday record of 5,200 for the first time. The Dow rose 345 points, or 0.9%, and the Nasdaq Composite added 1.1%.

Investors worried that the Fed could forecast fewer than three rate cuts this year, as economic reports in recent months has shown that inflation remains elevated and the labor market strong. Stocks teetered leading up to the Fed’s latest decision, but began to climb soon after.

No one can say for sure when the Federal Reserve will start cutting rates in earnest. But, until it does, you still have an opportunity to earn inflation-beating interest on your savings.

The Federal Reserve’s decision may be disappointing to some investors, homebuyers and those with a lot of credit card debt, since movement in the Fed’s overnight lending rate influences rates — directly or indirectly — on consumer financial products (e.g., credit cards, bank loans and mortgages).

But with the Fed signaling that no rate cuts are likely until summer, it also means anyone with savings still has a couple more months to make hay of their stash.

That’s because you can still get inflation-beating interest rates that will grow any money you have set aside for emergencies, vacations, down payments or any other goal in your sights over the next several years.

However, that won’t happen if you just let it sit in a traditional checking or savings account that yields next to nothing. There are more lucrative, low-risk options out there, with rates that are still at or near their peaks. “But perhaps not for much longer,” said Ted Rossman, senior analyst at Bankrate. “If one of those fits into your financial plans, it’s best to act soon.”

Read more here on where to park your hard-earned savings.

Investors are still digesting Wednesday’s Federal Reserve’s policy rate decision, economic projections and Fed Chair Jerome Powell’s press conference, but so far they seem to like what they’ve seen and heard.

“Despite projections of stronger growth, lower unemployment, and slightly higher core PCE inflation, policymakers still anticipate three rate cuts this year,” wrote Whitney Watson, global co-head and co-chief investment officer of Fixed Income and Liquidity Solutions at Goldman Sachs Asset Management in a note on Wednesday afternoon.

Goldman Sachs lowered its estimates from four to three rate hikes earlier this week.

“The slight rise in the longer-run policy rate forecast is both negligible and noteworthy. It is negligible because market expectations are already much higher, but noteworthy as it reinforces the market’s recent perception that the rate-cutting cycle may be shallower than initially anticipated,” she said.

“Overall, despite recent bumps in the inflation road, major central banks remain on track for rate cuts in the coming months and high-quality fixed income bonds stand to benefit.”

This aerial photo shows houses in Centreville, Maryland, on March 4.

The Federal Reserve holding steady once again and keeping interest rates in the higher-for-longer realm likely will keep homebuyer demand muted, Fitch Ratings noted Wednesday.

“The latest Fed announcement confirmed that, despite likely short-term rate cuts later this year, mortgage rates will not fall enough to drive meaningfully higher origination volumes in 2024,” Eric Orenstein, senior director, Fitch Ratings, wrote Wednesday.

Home sales fell off a cliff in 2023, dropping 17% from a yearly high in February and hitting a low in October, a month when the average 30-year mortgage rate hit a 23-year high of 7.79%. During the week ended March 14, the average 30-year fixed-rate mortgage was 6.74%.

Heading into 2024, however, industry economists were optimistic the tide would turn. The Mortgage Bankers Association forecast that mortgage origination volume would increase by 19%, to 5.2 million loans in 2024.

Existing home sales picked up in January, rising 3.1% from December. The February data will be released next week.

“Eventually, mortgage loan volumes should normalize with lower rates, though there are likely several more challenging quarters ahead for mortgage companies,” Orenstein noted.

Treasury yields wavered Wednesday afternoon after the Federal Reserve announcement that it is holding rates steady and reiterated that it expects to cut interest rates three times in 2024.

The 2-year yield fell to 4.65%, while the yield on the 10-year note fell to 4.28% before edging up.

“The immediate market reaction is the relief we were expecting,” said Bryce Doty, senior portfolio manager at Sit Investment Associates. “Investors were worrying the Fed was going to pull back from rate cuts this year, so keeping three rate cuts on the table naturally pushes stocks higher and bonds yields lower.”

Traders see a roughly 74% expectation that the Fed will cut rates in June, up from about 59% a day earlier, according to the CME FedWatch Tool.

“Powell has perhaps shown his cards: He needs a good reason not to cut rates, rather than a reason to cut rates,” said Seema Shah, chief global strategist at Principal Asset Management. “However, there will be one question creating feelings of discomfort: how serious is the Fed about its 2% target?”

Federal Reserve officials predict US gross domestic product will expand at a 2.1% rate in 2024. That’s a sizable change from the 1.4% growth rate they predicted in December.

Currently, the economy is growing at a 3.2% pace, which is well above what economists had anticipated a year ago. Strong consumer spending continues to power the economy and fend off a recession.

In addition to GDP, here’s how Fed officials’ projections compare to the ones they made in December:

US markets gained traction Wednesday afternoon following the release of the Federal Reserve’s March policy decision and quarterly economic projections.

The central bank kept interest rates the same, as widely expected, and forecast that there would be three rate cuts this year. Investors had worried that the Fed might lower its projection to two cuts this year, so celebrated the news.

The Dow was 129 points, or 0.3%, higher on Wednesday afternoon. The S&P 500 gained 0.3% and the Nasdaq Composite was up 0.5%.

Federal Reserve Chair Jerome Powell speaks during a press conference in Washington, DC, on March 20.

The Federal Reserve held its key interest rate steady Wednesday for the fifth consecutive meeting, as the central bank awaits more data to determine when to cut rates.

The Fed has raised rates aggressively over the past two years to a 23-year high in a bid to fight the highest inflation in decades. But while Americans continue to battle elevated interest rates and inflation, Fed officials are still not ready to cut interest rates and bring down the cost of borrowing.

Central bankers are facing the difficult task of balancing the risk of cutting too soon with the risk of cutting too late — both of which come with consequences.

Wall Street is betting that the first rate cut will come in the summer.

Even though inflation is above the Federal Reserve’s 2% target and officials anticipate it will take until 2026 to get there, the central bank is sticking to its earlier prediction of three rate cuts this year. That’s according to the Fed’s latest Summary of Economic Projections.

On top of that, officials revised their projections upward for a key inflation measure that strips out food and energy prices, which are highly volatile.

The latest projections also show that officials are closer in agreement on where the Fed’s key interest rate should be now compared to December. The range they now foresee is between 4.4% and 5.4% for 2024. In December, the range was 3.9% to 5.4%.

The central bank is currently targeting a range between 5.25% and 5.5%.

A Brinks armored truck sits parked in front of the shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California. 

At last March’s Federal Reserve meeting, officials’ heads were swimming. Not only was inflation well above target, but the entire US banking system was under pressure after Silicon Valley Bank shuttered on March 10.

Fed Chair Jerome Powell sought to reassure depositors at the post-meeting press conference, saying multiple times that the banking system is “sound and resilient.” Such language was included in the Fed’s subsequent policy statements up until its January 31 meeting started.

Coincidentally, though, more people were wondering that day if the banking system was indeed sound and resilient as shares of New York Community Bank plunged.

That bank subsequently came under more pressure after the beleaguered regional lender said it identified a “material weakness” in the company’s lending operations. It said it had to do with “internal loan review, resulting from ineffective oversight, risk assessment and monitoring activities.” 

Such language mirrored post-mortem reports of SVB and Signature Bank, which also failed a year ago.

NYCB has since recovered a small portion of its losses from the past two months after receiving a $1 billion lifeline investment.

US markets are slightly higher but mostly flat ahead of the Federal Reserve’s policy announcement on Wednesday.

The Dow was up 25 points, or 0.1% early Wednesday afternoon. The S&P 500 and Nasdaq Composite were both flat.

Wall Street appears to be in a holding pattern ahead of the central bank’s interest rate decision and the release of its quarterly economic forecast.

Investors are nearly certain that interest rates will remain the same, but will pore over the Fed’s projections and listen carefully during Fed Chair Jerome Powell’s press conference for clues about potential rate cuts this summer.

Migrants wait to be processed by the Border Patrol in Ciudad Juárez, Mexico, on March 15.

The US economy defied forecast after forecast predicting an imminent recession over the past two years. Instead, it grew beyond belief.

A boom in immigration was part of the recipe, Federal Reserve Chair Jerome Powell said in a “60 Minutes” interview on CBS last month.

But stricter measures could be coming to curb immigration after the Supreme Court announced Tuesday it is temporarily allowing Texas to enforce a controversial law that allows state officials to arrest and detain people they suspect of entering the country illegally. (A federal appeals court late Tuesday night put Texas’ controversial law back on hold.)

Congress is also resuming its fight on immigration this week against the backdrop of a looming partial government shutdown.

Often absent from their bickering is the economic impact of immigration. At a time when a record number of migrants have crossed into the country, the economic implications carry even more weight. By and large, it’s difficult to make the case that higher rates of immigration are completely a win-win. But it’s equally difficult to make the case that it’s a lose-lose situation.

Read more here.

Customers check out at a Costco store in Teterboro, New Jersey on February 28.

The soft landing that once looked nearly impossible for the Federal Reserve to pull off is still on track. That’s the message from Jan Hatzius, the chief economist of Goldman Sachs.

“Certainly, it doesn’t look like the economy is anywhere close to a recession,” Hatzius told CNN.

Even though he concedes inflation has come in hotter-than-expected so far this year, the Goldman economist is sticking by his prescient call for a soft landing.

“If I look at the news flow overall over the last year, it’s still very, very positive,” Hatzius said. “Inflation has come down very substantially over that period. And more importantly, it’s come down without significant weakness in activity. We haven’t seen a recession. We haven’t been close to a recession.”

To fight inflation, the Federal Reserve spiked interest rates in 2022 and 2023 at the fastest pace since the 1980s under legendary Fed chief Paul Volcker.

Many feared that war on inflation would cause unemployment to surge and short-circuit the economic recovery from Covid-19. At one point in the fall of 2022, a model by Bloomberg projected a 100% risk of a US recession over the following 12 months.

Now, many economists are in the soft landing camp as consumer spending and the jobs market have proven to be much more resilient than anticipated.

Read more here.

Goldman Sachs’ Jan Hatzius told CNN that inflation will likely have cooled enough by June to pave the way for the Fed to start cutting interest rates. That would help ease high borrowing costs on everything from mortgages and car loans to credit cards.

“Our forecast and current market expectation is that the first cut comes in June, but it’s going to be data dependent,” Hatzius said.

The Fed could speed up interest rate cuts if the historically strong jobs market starts to weaken.

“If we were to see more pervasive signs of labor market deterioration, I’d say it becomes more urgent to move,” Hatzius said.

Even as hiring has remained sturdy, the unemployment rate climbed to 3.9% in February, up from the historic low of 3.5% as recently as July 2023.

Hatzius said that if the unemployment rate moves into the low-4% range, that would make officials inside the Fed nervous enough to start pulling forward their rate cut plans.

Rooftops of homes in a gated residential community are seen in Pico Rivera, California on January 18, 2024.

US interest rates have been at 23-year high for months, yet unemployment is low, stocks have reached repeated record highs and there’s no recession in sight.

Economists are baffled.

Whenever the Federal Reserve lifts rates to battle high inflation, the risk of a recession increases, and the US economy has typically fallen into an economic downturn under the weight of rising borrowing costs. But that has yet to happen this time around.

America’s economy remains remarkably solid — despite high interest rates.

Economists that’s partly due to the ultra-low mortgage rates that homeowners locked in during the pandemic, when the Fed slashed rates almost to zero; along with generally healthy household finances of many Americans as the country entered Covid lockdowns.

Fed Chair Jerome Powell told CBS News last month that it was “critical” for the central bank to raise rates at the aggressive pace it did, even if it meant that Americans might feel some “pain.”

“I was being honest in saying that we thought there would be pain. And we thought that the pain would likely come, as it has in so many past cycles, in the form of higher unemployment,” Powell said. “That hasn’t happened.”

While it’s a phenomenon that has perplexed many economists, it has, more importantly, spared Americans so far from the unforgiving economic pain of a recession.

Read more here.

Federal Reserve Bank Chairman Jerome Powell testifies before the House Financial Services Committee in the Rayburn House Office Building on Capitol Hill on March 06 in Washington, DC. 

When Federal Reserve officials forecast three rate hikes this year back in December, investors were convinced the first of those would come this month.

But with inflation running above the Fed’s target and signs that it could flare up again, Fed officials were quick to dampen investors’ hopes for a spring rate cut.

The timetable for rate cuts remains uncertain, in part because the labor market continues to exceed expectations.

Ahead of the Fed’s Wednesday decision, investors predicted June was the most likely meeting for rate cuts to kick off, according to Fed funds futures data. Traders are pricing in a 60% chance of a quarter-point cut then.

 In an aerial view, homes sit on lots in a residential neighborhood on March 15 in Miami, Florida.

Fannie Mae now expects the 30-year fixed mortgage rate to end the year at 6.4%, up from 5.9% just last month.

The mortgage giant’s research branch cited fading hopes for rate cuts from the Federal Reserve. That’s a result of stronger-than-expected jobs and inflation data.

But existing home sales will trend upward for the rest of the year, the mortgage lender predicts. Even though many homeowners are putting off moving because they locked in low mortgage rates early in the pandemic, there are some that will be forced to move because of “life events.”

Fannie Mae is also downgrading its total home sales expectations to reflect higher borrowing costs.