US Fed Meeting Outcome highlights: Powell-led FOMC holds rates steady at 5.25-5.50%, cuts Treasury cap to $25 billion

US Fed Chair Powell-led FOMC will now meet on June 11-12 to deliberate for the next set of policy decisions.

 -Benchmark interest rates unchanged at 5.25-5.50 per cent, held at 23-year high mark 

-Fed to not cut rates until inflation move sustainably to two per cent target.

-Lack of further progress on inflation, economic outlook uncertain, says Fed

-Fed to slow down pace of balance-sheet runoff starting in June

The US Fed concluded in its statement that ‘’In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals.''

Gold prices climbed over one per cent on Wednesday as the dollar and US Treasury yields tumbled lower after the Federal Reserve's interest-rate decision and Chair Powell's speech. 

Spot gold was up 1.7 per cent at $2,323.38 per ounce, after hitting its lowest level since April 5 earlier in the session. US gold futures settled 0.4 per cent higher, at $2,311. The dollar eased 0.3 per cent, making gold less expensive for other currency holders. Benchmark US 10-year bond yields also crept lower.

Fed's Powell said at his press conference, "I don't understand" where concerns about stagflation are coming from. Stagflation in the 1970s was 10 per cent unemployment, high single digit inflation, slow growth. Now we have solid three per cent growth and inflation under three per cent. "I don't see the stag, or the inflation."

Stocks joined gains in bonds after the Federal Reserve decision was not as hawkish as feared by Wall Street, with Jerome Powell saying it’s unlikely the next move will be a rate hike. The S&P 500 rose one per cent, erasing earlier losses. 

Treasuries also gained as the Fed agreed to slow the reduction in its bond portfolio. US two-year yields dropped below five per cent as swap traders boosted their bets on rate cuts and projecting higher odds that the first move will happen in November, instead of December.

Federal Reserve Chair Jerome Powell said that other countries and financial markets are adapting well to the economic growth and monetary policy divergence between the U.S. and the rest of the world, without the emerging market turmoil that marked such divergence in the past. 

"For the emerging market economies, we haven't seen the kind of turmoil that was more frequent 20 years ago, 30 years ago," Powell told a news conference after the Fed's decision to hold rates steady. "And that's, I think, partly because emerging market countries, many of them have much better monetary policy frameworks, much more credibility on inflation, and so they're navigating this pretty well this time."

Treasury yields declined, with the two-year note’s falling below five per cent, after the tone of the Federal Reserve’s latest monetary policy statement was less hawkish than many investors expected. 

Though the central bank acknowledged “lack of further progress toward its two per cent inflation goal in recent months,” market-implied expectations for at least one Fed rate cut this year remained intact. December swap contracts continued to price in about 30 basis points of easing by the central bank. 

The US dollar fell on Wednesday after the US Federal Reserve signaled it is still leaning toward eventual reductions in borrowing costs, but repeated that it wants to gain "greater confidence" that inflation will continue to fall before cutting rates. The dollar index fell 0.44 per cent at 105.85, after earlier reaching 106.49, the highest since April 16. A break above the 106.51 would be the highest since early November.

Wall Street stocks shot higher Wednesday afternoon after Federal Reserve Chair Jerome Powell said the central bank is "unlikely" to raise interest rates. Major indices were up about one percent or more after Powell said the central bank's next change would probably not be an interest rate increase. The Fed kept interest rates flat for the sixth straight meeting.

The Federal Reserve's next policy rate move is unlikely to be an increase, Fed Chair Jerome Powell said on Wednesday, adding that the central bank's policy focus has been to maintain its current restrictive policy stance. 

"So I think it's unlikely that the next policy rate move will be a hike. I'd say it's unlikely," Powell told a news conference when asked about the risks that rates may need to be lifted to bring down inflation.

US inflation data this year has not given Federal Reserve policymakers enough confidence to reduce interest rates, and it is likely that this "will take longer than previously expected," Fed Chair Jerome Powell said Wednesday. 

While the central bank is prepared to hold rates at a high level for as long as appropriate, Powell added that it is "unlikely that the next policy rate move will be a hike."

US inflation data this year has not given Federal Reserve policymakers enough confidence to reduce interest rates, and it is likely that this "will take longer than previously expected," Fed Chair Jerome Powell said Wednesday. While the central bank is prepared to hold rates at a high level for as long as appropriate, Powell added that it is "unlikely that the next policy rate move will be a hike."

“In recent months," Chair Jerome Powell said at a news conference, “inflation has shown a lack of further progress toward our two per cent objective." “It is likely that gaining greater confidence,” Powell added, "will take longer than previously expected.” 

The central bank’s latest message reflects an abrupt shift in its timetable on interest rates. As recently as their last meeting on March 20, the Fed’s policymakers had projected three rate reductions in 2024, likely starting in June. Rate cuts by the Fed would lead, over time, to lower borrowing costs for consumers and businesses, including for mortgages, auto loans and credit cards.

The Federal Reserve said it will shrink its balance sheet at a slower place beginning in June, reducing the amount of bond holdings it lets roll off every month. As part of its plan announced Wednesday, the Fed will lower the cap on how much Treasuries it will allow to mature without being reinvested each month, to $25 billion from $60 billion. It kept the cap for mortgage-backed securities unchanged at $35 billion. 

Treasuries held gains after the Fed’s announcement Wednesday. The central bank has been winding down its holdings since June 2022 — a process known as quantitative tightening — gradually increasing the combined amount of Treasury and mortgage bonds it allowed to run off without being reinvested to a total of $95 billion per month.

The Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward two per cent.

The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage‑backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.

‘’In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward two per cent,'' said the FOMC in its statement.

The US Fed signalled that it is leaning towards eventual reductions in borrowing costs, but put a red flag on recent disappointing inflation readings and suggested a possible stall in the movement towards more balance in the economy. 

The Fed's latest policy statement, issued at the end of a two-day meeting, kept key elements of its economic assessment and policy guidance intact, noting that "inflation has eased" over the past year, and framing its discussion of interest rates around the conditions under which borrowing costs can be lowered.

Powell-led FOMC held the key rates unchanged at 5.25-5.50 per cent for the sixth straight meeting. The US central bank signaled it is still leaning towards eventual reductions in borrowing costs, but put a red flag on recent disappointing inflation readings and suggested a possible stall in the movement towards more balance in the economy.