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FOMC Meeting: Key Takeaways

Wells Fargo Investment Institute shares its key takeaways from the Federal Reserve’s decision to keep the federal funds rate unchanged.

FOMC Meeting: Key Takeaways

January FOMC meeting | January 31, 2024

Policy Announcement

The Federal Open Market Committee (FOMC or the Committee) kept the federal funds rate unchanged at 5.25% – 5.50% for the fourth straight meeting. The FOMC stated that “it will not be appropriate to reduce the federal funds target range until inflation moves sustainably toward 2%”. The Federal Reserve (Fed) continues reducing its holdings of U.S. Treasury securities, agency debt, and agency mortgage-backed securities.

Stated reasons

  • Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have moderated since early 2023 but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.
  • The FOMC judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.

Looking forward

  • In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.
  • Also, the FOMC 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%. The Committee will continue to take into account a wide range of information, including readings on labor market conditions, inflation pressures, inflation expectations, and financial and international developments.
  • We believe the Fed has reached its terminal policy rate for this cycle and that additional rate hikes are off the table in the near term. Most of the attention will now focus on the timing and the extent of rate cuts during 2024. The latest federal funds target range projections from the FOMC imply that policymakers expect three rate cuts this year, finishing 2024 at 4.6%.

What else?

  • We think the market is still priced for a too-optimistic outcome regarding future Fed rate cuts. As the dis-inflation base effect wears off, we think it will prove difficult for inflation to move quickly toward the Fed’s 2.0% inflation target.
  • Given our expectation of only three rate cuts in 2024 following an economic slowdown in the first half of 2024, we continue to position portfolios defensively. We believe fixed-income investors may benefit by being most favorable short-term fixed income and neutral intermediate and long-term.

Upcoming meeting schedule

  • March 20* | May 1 | June 12* | July 31

    *Indicates the meeting is associated with a summary of economic projections. In addition, every meeting will be accompanied by a press conference.

Risk Considerations

Forecasts are not guaranteed and based on certain assumptions and on views of market and economic conditions which are subject to change.

Investments in fixed-income securities are subject to interest rate, credit/default, liquidity, inflation and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline in the bond’s price. Credit risk is the risk that an issuer will default on payments of interest and principal. This risk is higher when investing in high yield bonds, also known as junk bonds, which have lower ratings and are subject to greater volatility. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.

General Disclosures

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability or best interest analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon.

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