Morning Market Brief: May 2, 2024

As expected, the Fed holds steady?

The US Federal Reserve Board (Fed) concluded its meeting by announcing it was holding its policy interest rate steady. The move was widely expected by markets in response to choppy yet still elevated inflation, a robust labour market and relatively resilient economic growth. Interest-rate cuts might still be on the horizon, it is just a matter of when.?

• The Fed held its federal funds rate steady at a target range of 5.25%–5.50%. This marks its sixth straight rate hold. The Fed is keeping its rate at restrictive levels in its ongoing efforts to bring down inflation.
• The Fed doesn’t appear to be in a rush to lower interest rates, given current economic conditions. The Fed believes inflation remains a risk and is seeking more proof that inflation will sustainably move to its 2% target.
• Fed Chair Jerome Powell noted the central bank is willing to keep rates high for as long as necessary. Elevated inflation and a robust labour market have stalled the Fed’s path to bringing inflation down to its target.
• The Fed also announced it would slow the pace of its quantitative tightening. The Fed will reduce the cap on allowing US Treasures on its balance sheet to mature.
• Attention now turns to the US labour market over the rest of the week. The US Bureau of Labor Statistics is set to release US labour market data, including job changes and the unemployment rate, on Friday. Yesterday, ADP reported that US private businesses added another 192,000 jobs in April.

While rate cuts from the Fed seem to be a bit off in the distance, investors were optimistic that the comments didn’t suggest there might be another rate hike. This appears to be the peak of interest rates for the Fed in the current cycle. Canadians might not have to wait as long. Given different economic conditions here in Canada, the Bank of Canada seems poised to potentially begin cutting interest rates over the summer.

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