In a widely anticipated move, the Federal Reserve announced its decision Wednesday to maintain the federal funds rate target range at 5.25%-5.5%.
This marks the third consecutive meeting where rates have been held steady, likely marking the end of the rate-hiking cycle that commenced in March 2022.
The Federal Reserve added that "inflation has eased over the past year" but sticked to mentioning that it "remains elevated" and reaffirmed its "strong commitment" to steering it back to the 2% target. Additionally, the Fed underscored its ongoing commitment to a data-dependent strategy for future policy decisions.
Amid heightened attention from traders, the Fed released its new economic projections. Policymakers have revised their GDP forecasts upward for 2023 while lowering the inflation forecasts compared to the projections made in September.
The "dot plot," a key indicator of Federal Reserve board members' policy preferences, now shows a median preference for rates at 4.6% by December 2024, indicating a 75-basis-point reduction from the current target range and 50 basis points lower than the September projection of 5.1%.
Looking further ahead, the median expectations among Fed policymakers for the outer years are set at 3.6% for 2025 and 2.9% for 2026.
Market Reactions
Initial market responses saw the U.S. dollar tumbling, Treasury yields falling, equities and gold rallying.
The focus now shifts to Fed Chair Jerome Powell's upcoming press conference for further clarification on the Federal Reserve's policy path, which has the potential to trigger significant market fluctuations.
