Fed Chair Powell announced (FOMC) that interest rates will increase with an additional 25 base points (0.25%), from 4.75% to 5.00%. This was vastly expected, however, a dovish decision following the current banking crisis that is being experienced, as we saw bank runs happening on SVB, Signature and Credit Swisse.

He addressed the banking crisis in line with the Treasury by creating the bank term funding program which will allow the banks to borrow at par from the Treasury if they hold safe and liquid assets. This will allow banks to meet the unusual funding needs that some banks face and will ensure that there remains ample liquidity in the banking system.

He did reiterate that 2% inflation remains their main priority, and price stability is the main goal, without price stability they will not be able to maintain a strong labour market that would be a benefit to all.

GDP Current Position According To FOMC

GDP remains low, and consumer spending picked up over the last month, however, activity in the housing market remains weak largely down to the higher mortgage costs. The committee expect the subdued GDP growth to remain low with a median projection of 0.4%.

They still have fears with regard to inflationary pressures with the median projection for this year for PCE to average out at 3.3%, 2.5% for 2024 and 2.1 for 2025. They still expect a “bumpy” road ahead to get inflation down to 2%.

The FOMC members expect the FED funds rates to end 2023 at 5.1%, in 2024 at 4.3% and at 3.1% in 2025. If the economy does not evolve as a projected path policy will adjust as required.

There was a consideration in the leadup to the FOMC meeting that the committee would look at pausing following the banking crisis, however, it did change its guidance with regards to the shorter term and where they see rates by the end of the year by lessening the rate hikes during the remainder of the year.

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How the market reacted

The Dollar weakened as we saw EUR/USD  increase from 1.0786 to 1.0911 by the end of the press conference, the market continued to the upside during the Asian session making a high of 1.0929. Gold gained nearly $30 increasing from 1946 to 1978 during the press conference. The Dow Jones and Nasdaq declined in value as both closed out the day at 32 113 and 12 596 respectively. 

Final Thoughts FOMC Meeting

In conclusion, the March FOMC meeting shows that the Federal Reserve has commit to maintaining its accommodative monetary policy stance. This is as the US economy continues to recover from the pandemic-induced downturn. 

The Committee acknowledged the recent surge in inflation but reiterated that it is likely to be transitory and that the Fed will continue to support the economy until its employment and inflation goals are met. Overall, the meeting was in line with market expectations, and investors will be closely monitoring the Fed's future decisions as the economy evolves in the coming months.