- Investors ramped up bets that the first rate cut is coming in June after Wednesday's Fed meeting.
- CME's FedWatch Tool showed expectations of a June cut rose to 70% after the decision, up from 55% earlier in the day.
- The Fed's dot plot forecasts three cuts in 2024.
Market expectations for a June rate cut spiked on Wednesday following the Federal Reserve's decision to hold interest rates steady and its nod to three rate cuts still in the cards for 2024.
Federal Open Market Committee members voted unanimously to keep rates within the 5.25%-5.5% range. The decision was in line with expectations and marks the fifth consecutive meeting that saw the central bank's benchmark rate unchanged.
The Fed's dot plot indicated that policymakers still anticipate three 25-basis-point rate cuts in 2024, though the median forecast for the benchmark rate climbed from 3.6% to 3.9%. The Fed also anticipates three rate cuts in 2025.
After the announcement, CME's FedWatch Tool showed traders' expectations for a cut in June ramped up to nearly 70% from 55% earlier in the day before the decision.
In his press conference, Jerome Powell maintained that the Fed will continue to be data-dependent as the economy remains on solid footing, and that the Fed is still "strongly committed" to achieving its 2% inflation target.
Powell added that the Fed will indeed reach that target at some point, even as the road has been bumpy so far.
February's CPI came in at 3.2% year-over-year, hotter than expected.
"We make decisions meeting by meeting, and we didn't make any decisions on future meetings," Powell said. "Things can happen during an inter-meeting period...the committee wants to see more data that gives us higher confidence that inflation is moving toward 2%."
Policymakers also raised their outlook for long-term rates. The median estimate ticked up from 2.5% to 2.6%, which nods to the higher-for-longer narrative that has increasingly become consensus.
Whitney Watson, Goldman Sachs Asset Managements' co-chief investment officer of Fixed Income and Liquidity Solutions, said the firm maintains its prediction for the Fed to begin cutting rates in the summer.
"The slight rise in the longer-run policy rate forecast is both negligible and noteworthy," Watson said after the FOMC decision. "It is negligible because market expectations are already much higher, but noteworthy as it reinforces the market's recent perception that the rate-cutting cycle may be shallower than initially anticipated. Overall, despite recent bumps in the inflation road, major central banks remain on track for rate cuts in the coming months and high-quality fixed income bonds stand to benefit."