Fed to hold rates at March FOMC: what it means for stocks, gold, USD

Data current as of 3/12/2024

Key points

• Fed Powell likely to hold rates in March: (0:43)
• Interest rate cut path for 2024: (2:25)
• S&P 500 could fall if no cuts in 2024: (5:22)
• Gold vulnerable to higher interest rates: (8:02)
• US dollar positively correlated to rates: (9:26)

Fed Powell likely to hold rates in March

Market sentiment, shaped by futures prices from the CME, suggests there's an 99% chance that the Federal Open Market Committee (FOMC) will keep the Fed Funds interest rate steady in March. This anticipation sets the stage for monetary policy stability, at least in the short term. Investors and traders closely watch these developments, understanding that stable rates often signal confidence in current economic conditions and can influence market movements and investment strategies.

Interest rate cut path for 2024

Looking beyond the March meeting, traders will hope for clarity from Fed Chair Powell's regarding the potential for interest rate cuts in 2024, with CME futures indicating a 12.5% chance of a cut in May and a 65.5% chance in June. These probabilities have significantly lowered in recent weeks, with strong inflation data in January and February delaying the start of the anticipated cutting cycle.

S&P 500 could fall if no cuts in 2024

The S&P 500, a benchmark for US stock performance, faces potential declines if the anticipated lower interest rates do not materialize this year. Investors have built expectations around easing monetary policy; a scenario with unchanged or heightened rates could disrupt market valuations. This relationship between interest rate expectations and stock prices underscores the interconnectedness of monetary policy and financial market dynamics, emphasizing the delicate balance central banks navigate.

Gold vulnerable to higher interest rates

As a non-interest-bearing asset, gold's allure diminishes when interest rates rise, given its inverse correlation with interest-bearing assets. This vulnerability means that higher interest rates could dampen gold's appeal to investors seeking yield. The dynamics between gold prices and interest rates reflect broader economic themes, including inflation expectations and the pursuit of safe-haven assets amid market volatility.

US dollar positively correlated to rates

The direction of the US dollar, in the context of interest rate adjustments, highlights a positive correlation. Should the central bank opt for rate cuts in the near future, the dollar might face downward pressure; conversely, maintaining rates above 5% could strengthen the dollar. This correlation between the dollar and interest rates underscores the complex interplay between monetary policy, currency valuations, and global financial market sentiments, showcasing how central bank decisions can ripple through the economy.