[New York Stock Market] US Fed Maintains "Three Rate Cuts This Year," Leading to Rise... Three Major Indexes Reach All-Time Highs

Powell "Interest Rate Peak... Policy Restraint to Be Reversed Within the Year"
FOMC Maintains Three Rate Cut Forecasts for This Year

The three major indices of the U.S. New York stock market all closed higher on the 20th (local time). Despite persistent inflation recently, investors welcomed the Federal Reserve's (Fed) decision at the Federal Open Market Committee (FOMC) meeting to maintain the forecast of three interest rate cuts this year, leading all three indices to reach record highs.

On this day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average rose 401.37 points (1.03%) from the previous trading day to close at 39,512.13, breaking its all-time high. The large-cap-focused S&P 500 index increased by 46.11 points (0.89%) to 5,224.62, and the tech-heavy Nasdaq index rose 202.62 points (1.25%) to 16,369.41, also hitting record highs.

Investors focused on the big event of the day, the March FOMC. As expected, the Fed kept the federal funds rate unchanged at 5.25?5.5%. This marks the fifth consecutive hold following decisions in September, November, and December of last year, and January of this year. The interest rate gap with South Korea remained at 2 percentage points at the upper bound.

Since the rate hold was widely anticipated, the key point was the dot plot showing rate projections. The Fed maintained its year-end rate forecast at 4.6%, unchanged from before. This implies the possibility of three 0.25 percentage point rate cuts from the current 5.25?5.5% level. Earlier this year, due to stronger-than-expected inflation, the market speculated that the Fed might reduce the number of rate cuts from three to two this year, but the Fed kept the forecast at three cuts. Furthermore, Fed Chair Jerome Powell's statement that he would not be swayed by the inflation rises in January and February was interpreted by the market as a dovish (monetary easing-favoring) message, which was warmly received.

At the press conference following the regular FOMC meeting, Chair Powell reaffirmed the plan for rate cuts within the year. He said, "It is highly likely that the policy rate has peaked in this cycle," and "It would be appropriate to reverse policy tightening at some point this year." He added, "The recent two bouts of hot inflation do not shake our confidence that prices will cool," and "Inflation still exceeds the long-term target of 2%, and the easing process is not smooth, but we continue to make good progress in lowering inflation."

Prior to Powell's press conference, the FOMC policy statement released did not contain any content that would raise market concerns. It only included the fundamental stance that cautious rate cuts are necessary, as Fed officials have repeatedly emphasized. The Fed stated in the policy statement, "Recent indicators suggest economic activity is expanding at a solid pace," adding, "Job gains remain strong, and unemployment remains low. Inflation has eased over the past year but remains elevated." It further explained, "In considering adjustments to the target range for the federal funds rate, we will carefully assess incoming data, evolving outlook, and risk balance," and "It is not appropriate to reduce the target range until we have greater confidence that inflation is moving sustainably toward 2%."

The Fed also updated its Summary of Economic Projections (SEP), which is released quarterly and includes GDP, inflation, and unemployment forecasts. The GDP growth forecast for this year was significantly raised from 1.4% to 2.1%. The unemployment rate was lowered from 4.1% to 4%. Inflation, based on the core Personal Consumption Expenditures (PCE) price index, which the Fed closely monitors, is expected to be 2.6%, up 0.2 percentage points from the previous forecast.

Following this FOMC, market expectations for a rate cut in June have increased further. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market on this day reflected over a 74% chance that the Fed will cut rates by at least 0.25 percentage points at the June FOMC, a significant rise from about 59% the previous day.

With rate cut expectations rising, Treasury yields are falling. The U.S. 2-year Treasury yield, sensitive to monetary policy, traded down 6 basis points (1bp = 0.01 percentage points) from the previous day at 4.626%. The U.S. 10-year Treasury yield, a global bond yield benchmark, hovered around 4.271%, down 1 basis point from the previous day.

Societe Generale's chief U.S. rates strategist said, "Despite strong growth and high inflation, the Fed still seems inclined toward cuts," adding, "The Fed is looking at the long-term trend of inflation rather than monthly changes, and if inflation is generally moving in the right direction, it appears willing to cut rates."

Chris Zaccarelli, Chief Investment Officer (CIO) of Independent Advisor Alliance, said, "The 'no news is good news' press conference was a green light for the market to continue rising," and predicted, "The Fed will not hinder the bull market."

By sector, technology stocks rose significantly on rate cut expectations. All Magnificent 7 stocks increased. Microsoft (MS) rose 0.91%, Apple and Nvidia increased by 1.47% and 1.09%, respectively. Alphabet, Google's parent company, rose 1.19%, Amazon increased 1.28%, Meta, Facebook's parent company, rose 1.87%, and Tesla climbed 2.53%. Intel rose 0.36% on news that it would receive $8.5 billion in subsidies and $11 billion in loans from the U.S. government under the CHIPS and Science Act (CSA). Chipotle, a U.S. Mexican food chain, rose 3.48% on news of a stock split at a 50-to-1 ratio, the largest in U.S. stock market history.

International oil prices declined amid concerns over weakening demand. West Texas Intermediate (WTI) crude fell $1.79 (2.14%) to $81.68 per barrel, and Brent crude dropped $1.43 (1.64%) to $85.95 per barrel.