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Market Update

Fed holds rates but announces a slowing pace of quantitative tightening

May 1, 2024


On Wednesday, May 1, 2024, the Federal Open Market Committee (FOMC) voted unanimously to hold the fed funds rate at a target range of 5.25%–5.50%. This marks the sixth consecutive FOMC meeting with no change to the fed funds target and comes as no surprise to market participants who have pushed out expectations for initial Fed cuts. As such, the FOMC statement added a new sentence in its first paragraph explaining, “In recent months, there has been a lack of further progress toward the Committee’s two percent inflation objective.” The other meaningful element in the statement included an announcement that the Fed would slow the pace of decline of its Treasury holdings (i.e., quantitative tightening), reducing its monthly balance sheet runoff from $60 billion to $25 billion. In the press conference following the meeting, Powell was balanced as usual but notably indicated that the Fed’s next move being a hike is “unlikely.”

Impact on rates

Rates fell during the hour following the FOMC announcement, as Powell’s comment about ruling out further hikes began to reflect in the curve. On both the short and long ends of the curve, rates fell about five basis points, reversing movement seen in the recent days. More broadly, rates have climbed considerably since prior FOMC meetings, as evidenced in the chart below. Specifically, two-year swap rates have risen 87 basis points since the January FOMC meeting and five-year swap rates have marched a similar 85 basis points higher. After the beginning of 2024 priced in as many as six rate cuts, market participants now factor in only one discrete cut for the rest of the year. Shifting to long-term yields, it's possible the slowing of quantitative tightening will have an impact on longer-term yields going forward, with fewer Treasurys being purchased by secondary market participants as the Fed reinvests more of its maturing notes, thereby easing the upward pressure on long-term rates.

Source: Chatham Financial

Moving forward

While the market will focus on Powell dismissing the possibility of hikes in the near future, it's worth noting he led the meeting sharing that bringing inflation down is “not assured,” highlighting the challenging position the Fed is in currently. Ultimately, while acknowledging that restrictive rates are curbing demand overall, Powell pointed out that labor demand still exceeds supply of available workers, fueling a strong labor market and wage growth. The balance of strong economic growth factors against the Fed’s commitment to bringing inflation down suggests a continued ambiguity on the exact path forward.

Explore a recent Expert Conversation

Joseph LaVorgna, Chief Economist of SMBC Nikko Securities America, Inc. discusses interest rate cuts, upcoming elections, economic challenges, and more.


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