Economic Forecast Update: What's Driving the Fed's Decision-Making?

The Federal Reserve concluded its two-day monetary policy meeting on the 20th, announcing no change in the federal funds rate target range, which remains between 5.25% and 5.5%. It marks the fifth consecutive meeting maintaining the rates unchanged since September last year. The Fed stated that lowering the federal funds rate target range would be inappropriate until it has greater confidence in sustained progress towards its 2% inflation goal. Amid uncertain economic prospects, the Federal Open Market Committee, responsible for setting monetary policy, will continue to closely monitor inflation risks.

Fed Upgrades Economic Growth Forecast and Anticipates Potential Three Rate Cuts This Year

The Fed also released its latest economic projections, raising the US economic growth forecast for this year by 0.7 percentage points to 2.1% and increasing the 2025 economic growth forecast by 0.2 percentage points to 2%. The unemployment rate for this and next year is projected to be 4% and 4.1% respectively. Additionally, the inflation expectations for this year, measured by the Personal Consumption Expenditures Price Index, stand at 2.4%, while the core inflation expectations, excluding food and energy prices, rose to 2.6%, still exceeding the 2% long-term target.

Based on the economic projections, 9 out of 19 Federal Open Market Committee members anticipate the federal funds rate level to drop to 4.5% to 4.75% within the year. This suggests that the Fed might implement three rate cuts this year, consistent with the forecast from December last year. 5 members project rates to fall to 4.75% to 5%.

Federal Reserve Chairman Jerome Powell's remarks at the post-meeting press conference have drawn significant attention from the market, particularly regarding the future direction of monetary policy. Here are some key points from his remarks:

1. Lack of Confidence in Rate Cuts: Powell stated that despite some data indicating a slowdown in the US economy, the Fed has not gained confidence in initiating rate cuts from the upcoming data. He emphasized that the Fed needs more time to assess the uncertainty surrounding inflation and economic prospects in order to formulate future monetary policy.
2. Emphasis on No Commitment to the Future: Powell sidestepped questions about whether the Fed would initiate rate cuts at the May or June meetings. He stressed that the Fed would not make commitments to future meetings and would make decisions independently at each meeting. This indicates that the Fed will adjust monetary policy flexibly based on changes in economic data and conditions.
3. Focus on Inflation and Economic Prospects: Powell reiterated concerns about the uncertainty surrounding inflation and economic prospects. He stated that the Fed would continue to closely monitor inflation rates as well as changes in global and domestic economic conditions, adjusting monetary policy accordingly. This suggests that the Fed will prioritize data-driven and flexible decision-making in formulating monetary policy.
4. Contrast Between Market Expectations and Fed Stance: Powell's remarks may impact market expectations. While some investors hoped for a more dovish stance from the Fed, Powell's statements indicate that the Fed remains cautious, with decisions on rate cuts requiring more data support.

The Federal Reserve's announcement of monetary policy had a certain impact on the market, but the market volatility remained relatively calm. Investors generally believe that the U.S. economy remains robust, but they also recognize that the uncertainty in the global economic environment could pose some degree of risk to the market. Therefore, investors will continue to monitor changes in U.S. and global economic data, as well as potential future policy measures by the Federal Reserve.

The impact of data released at the U.S. monetary policy press conference on the market

If the Federal Reserve hints at raising interest rates or maintaining a tighter monetary policy, this could prompt investors to shift from high-risk assets such as cryptocurrencies to more traditional assets in pursuit of higher returns, thereby exerting some downward pressure on the cryptocurrency market. Changes in Federal Reserve monetary policy may affect the trajectory of the US dollar. Generally, if the US dollar strengthens, cryptocurrency prices may face some suppression, as cryptocurrencies typically exhibit a negative correlation with the US dollar. If market sentiment turns cautious about economic prospects, investors may seek safe-haven assets, among which certain cryptocurrencies (such as Bitcoin) are considered alternative choices. In such a scenario, comments from Federal Reserve officials on economic prospects could influence investors' demand for safe-haven assets. Weak economic growth or rising inflation may lead to investor concerns about future profitability, resulting in stock market declines, reduced demand for commodities, and impacts on the US dollar exchange rate.

Following the announcement, gold prices quickly expanded their gains and reached an intraday high, with spot gold rising more than 1.2% this morning to hit a new historical peak near $2,223 per ounce. Precious metals futures surged across the board

Major U.S. stock indexes saw minimal movement, trading within a narrow range of ups and downs. They briefly turned positive collectively after the lunch hour before falling again just two minutes before the decision was announced.

After the decision was released, the dollar fell to its lowest level of the day at 103.40 and ended the session in negative territory, halting a four-day winning streak and moving away from a two-week high. The Bloomberg Dollar Index posted its largest intraday loss since March 8th.

Earlier, the leading cryptocurrency by market capitalization, Bitcoin, had briefly fallen below $61,000 but had returned above $63,000 by pre-market hours in the U.S. It then rose more than 5% during the late trading session, breaking above $65,000 and moving away from the monthly lows. The second-largest cryptocurrency, Ethereum, had once dipped below $3,100, but after turning around, it increased by more than 6% to over $3,300.