Top Wall Street Analysts Speak After FEDs Interest Rate Decision: Where Do We Stand and What Are Markets Expecting？

The FED chose to keep interest rates unchanged for the second consecutive year, keeping the target range of the benchmark interest rate at 4.25%-4.50%.

The decision to maintain the current interest rate was unanimous among Fed officials. However, a point of disagreement arose regarding the pace of balance sheet reduction. Fed member Christopher Waller opposed any slowdown in the balance sheet reduction process and wanted to continue at the current pace of reduction.

Josh Jamner, senior investment analyst at Clearbridge, said the Feds economic forecasts point to a more challenging economic environment for 2024. “Policymakers are predicting a moderate economic slowdown with rising inflation and unemployment,” Jamner said. “However, these forecasts are consistent with recent estimates from Wall Street banks and macroeconomic research organizations. Therefore, we do not expect these revisions to have a significant impact on financial markets.”

Jamner also noted that the Fed‘s policies could eventually lag behind fiscal policy. Market pricing in federal funds futures suggests the next rate cut isn’t expected until July, and that outlook is unlikely to change in the near term.

Whitney Watson, global co-head of Goldman Sachs Asset Management, noted the Fed‘s cautious stance, describing the latest meeting as a “wait-and-see” approach. “The revisions to the FOMC’s forecasts carry a hint of stagflation, with economic growth and inflation expectations moving in opposite directions,” Watson said. The Fed is expected to observe whether the current slowdown in economic activity turns into a more significant problem before making any policy changes.

Michele Raneri, Transunios Vice President and Head of US Research and Consulting, said that while the latest Consumer Price Index (CPI) data was relatively optimistic, the market is not expecting an immediate rate cut. However, upcoming labor market data could influence future decisions.

“Despite the Feds current stance, the possibility of a rate cut later this year remains, and multiple cuts could occur in 2025,” Raneri said. “If interest rates start to fall, consumers may be more inclined to use credit products that they have avoided in recent years, such as mortgage refinancing and auto loans. A more favorable credit environment could encourage new borrowing activity and support consumer confidence.”

*This is not investment advice.