US stocks fall after Fed keeps interest rates unchanged

On January 31, 2024, the Fed continued to keep the reference interest rate at its highest level in the past 22 years.

The move was in line with market expectations after the two-day policy meeting. Thus, the US reference interest rate will remain in the range of 5.25-5.5%.

The Fed's interest rate hikes have been ongoing since March 2022, with 11 rate hikes in an effort to curb inflation. Currently, inflation in the US has shown signs of slowing down compared to the peak last summer.

US stocks fall after Fed keeps interest rates unchanged — US stock market goes down after Fed meeting (Photo TL)

In December 2023, the PCE price index increased by only 2.6%. This means that the Fed is likely to move towards a rate cut in 2024. There have been many expectations betting on the Fed's policy rate cut in early 2024.

However, keeping interest rates at high levels has pushed back those expectations. "The committee does not believe it is appropriate to reduce the federal funds rate in the near term until it is more confident that inflation is moving steadily toward its 2 percent objective," the Fed said.

Also in the following press conference, Fed Chairman Jerome Powell said: "We have not yet reached a soft landing. I am very pleased with the progress we have made. But we cannot declare victory yet."

The chairman therefore stressed that no rate cut has been proposed at this time, making a rate cut in March less likely.

However, Chairman Powell also expressed great optimism about the economy . "In fact, the US economy has had solid growth. The unemployment rate is only 3.7%, showing that the labor market is still stable. Inflation data has been good for 6 consecutive months. I expect this to continue."

After the news that the Fed did not cut interest rates as expected, the US stock market witnessed a decline. At the end of the session on January 31, the DJIA index fell 0.8%. The S&P 500 lost 1.6% and the Nasdaq Composite fell 2.2%.

Source