Fed Holds Rates Steady in Powell's Last Meeting as Chairman

💡 The Federal Reserve has kept interest rates unchanged in Jerome Powell's last meeting as chairman, signaling a hawkish stance on inflation.

The Federal Reserve delivered a hawkish surprise on Wednesday, signaling that interest rate cuts remain further away than markets had hoped. Fed Chair Jerome Powell told reporters that the central bank needs "greater confidence" that inflation is sustainably declining before it will consider easing policy.

The 10-year Treasury yield surged to 4.8% in the aftermath, its highest level since October 2023. $TLT fell sharply as bond traders repriced the timing of the first cut from March to June.

Fed Signals Rates Higher for Longer

Powell's comments represent a significant shift from December's dovish pivot, where the Fed signaled a possible rate cut in 2024. The hawkish tone has been building since the January meeting, where the Fed hiked rates by 25 basis points.

Rate Cut Bets Are Put on Hold

The decision to keep rates steady has put rate cut bets on hold, at least for now. The market had priced in a 50% chance of a rate cut by the end of the year, but that probability has now fallen to around 20%.

Inflation Remains a Concern

Powell reiterated that inflation remains a concern, and the Fed will not ease policy until it is confident that inflation is sustainably declining. The core PCE price index, which is the Fed's preferred measure of inflation, has been trending higher in recent months.

What It Means for Investors