The Federal Reserve is set to maintain the current interest rates at a target range of 4.25% to 4.5%, according to widespread expectations ahead of its announcement scheduled for 2 p.m. ET on Wednesday. This decision comes as market participants closely monitor the central bank's quarterly projections that will shed light on future rate policies, inflation, and key economic data points.
Ahead of the announcement, the Dow Jones Industrial Average saw a modest increase, gaining approximately 115 points or 0.3%. The S&P 500 and Nasdaq Composite also experienced gains, trading about 0.4% and 0.7% higher respectively. Meanwhile, the 10-year Treasury yield was observed trading around 4.3%, marking a significant increase from around 2% in March 2022. The 2-year note also saw a rise, with its yield climbing more than 4 basis points to 4.09%.
The backdrop of rising borrowing costs for consumers has been shaped by the Federal Reserve's rate-hiking cycle in 2022, followed by three rate cuts in late 2024. These changes have notably impacted financial instruments like certificates of deposit and mortgage rates. The annual percentage yield on a five-year certificate of deposit was reported at 1.9% last week, a rise from the 0.5% yield noted in March 2022, according to Haver. Similarly, the 30-year fixed-rate mortgage increased to 6.81% as of the week of March 14, compared to 4.29% during the same week in 2022.
Michael Rosner, a private wealth advisor at Raymond James, commented on the anticipated Federal Reserve decision.
"The Federal Reserve is likely to keep rates unchanged at Wednesday's meeting, but the landscape has changed since the last Fed meeting in January, and this will be the first Fed meeting since the markets started to react negatively to trade tensions."
The rate-setting Federal Open Market Committee (FOMC) is expected to provide insights into its future outlook through its "dot plot," where members express their perspectives on potential rate cuts for the year. Additionally, investors will be closely watching the Federal Reserve's press conference at 2:30 p.m. ET for further indications regarding upcoming rate policies.
Rosner added that market volatility is anticipated around this event.
"We expect volatility around the FOMC press conference, as we are still a very headline-driven and headline sensitive market."