The Federal Reserve End March 2024 Meeting Again Holds Interest Rates at 5.25-5.50% Target

The Federal Reserve ended its March meeting leaving interest rates at their current target. The members unanimously indicated that they anticipate three quarter-point rate cuts before the end of 2024. Given that January and February inflation data was bumpy, Chairman Jerome Powell was non-committal on a timeline for the first cut. He said that the Fed will remain data-dependent and will not make any rate changes before its May or its June meeting. He also indicated that if inflation were to pick up dramatically, the Fed could still raise rates, although he tempered that statement by saying that he sees no indication at the moment that such action will be necessary.

What is clear is that the Fed is completely beholden to its dual mandate (price stability and maximum employment) and wants to see clear indications that inflation is heading decisively towards its 2% target before it begins to reign in interest rates.

I personally am in the camp that would be betting that the Fed will not move in May. There remains a possibility that developments in the Middle East and/or Russia could cause a global spike in energy costs again and that would factor right through to inflation. Even if the focus is not on the risk of an oil price spike, the Fed needs to get 3 months or so past the recent inflation data until it begins to cut.  And, that would put the first rate cut in the June meeting in the best-case scenario.

Interestingly, Chair Powell was asked about criticism that he has received from Republican lawmakers that high interest rates are burdening the American consumer, and about a letter that he has received from Senators Whitehouse and Warren that high rates are grinding renewable energy investment to a halt. His response was that he is sympathetic to those concerns, but that the Fed is charged by the Senate to pursue its dual mandate.

Those of us who invest in the renewable energy sector are very troubled by the slow pace of investment and it is clear that large project finance transactions cannot achieve the necessary internal rates of return (IRRs) when discounted by current rates. Unfortunately, Powell's answer to this question was correct and the Fed cannot be guided by the climate crisis while at the same time focusing on its dual mandate.