The Federal Open Market Committee voted unanimously on Wednesday to leave the target range for the federal funds rate at 5.25% to 5.50%, the fourth consecutive hold.

In the statement accompanying the decision, the Committee said recent indicators suggest that economic activity has been expanding at a solid pace, that job gains have moderated since early last year but remain strong, and that the unemployment rate has remained low. Inflation, it said, has eased over the past year but remains elevated. The Committee judged that the risks to achieving its employment and inflation goals are moving into better balance, while noting that the economic outlook is uncertain and that policymakers remain highly attentive to inflation risks.

STATEMENT LANGUAGE CHANGES

The operative change in Wednesday's statement was the removal of language from December that had explicitly kept open the door to further tightening. In its place, the FOMC inserted a more symmetric formulation referring to "any adjustments" to the target range, and added that it does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.

Speaking at the press conference that followed the decision, Chair Jerome Powell said the Committee's policy rate was likely at its peak for this tightening cycle and that, if the economy evolved broadly as expected, it would probably be appropriate to begin dialling back policy restraint at some point this year. He cautioned, however, that a March cut was not the base case. "I don't think it's likely that the Committee will reach a level of confidence by the time of the March meeting," Powell said, adding that the Committee would need to see more good inflation data, not better data, but simply more of the disinflation that had been observed over the past six months.

IMPLEMENTATION RATES HELD

Alongside the rate decision, the Board of Governors voted unanimously to maintain the interest rate paid on reserve balances at 5.40%, effective 1 February. The primary credit rate was held at 5.50%. The Committee also reiterated that it would continue reducing its holdings of Treasury securities and agency mortgage-backed securities in line with previously announced caps of $60 billion and $35 billion per month.

MARKETS RETRACE MARCH CUT BETS

Treasury markets repriced modestly after the statement, with the yield on the two-year note falling and federal funds futures pricing for a March cut dropping below 40%. The S&P 500 closed 1.6% lower, its worst session since September, with losses deepening as Powell's press conference progressed.

NEXT DECISION ON 19–20 MARCH

The next FOMC meeting is scheduled for 19–20 March, when the Committee will publish its first Summary of Economic Projections of 2024, including the updated dot plot of individual rate path expectations. The December projections showed three cuts pencilled in for 2024.