The Federal Reserve decided to keep interest rates unchanged at its latest policy meeting, maintaining the benchmark rate in the range of 5.25-5.50%. No officials see rates going up in 2024.

Forecast for 2024 Rate Cuts Remains Unchanged

Despite previous expectations of a lesser number of rate cuts due to recently released hot inflation numbers, the Fed still anticipates the need for three rate cuts in 2024.

Seventeen officials predict a rate cut this year while just two see no cut. Only one official sees the Fed slashing rates by more than 0.75% this year compared to five in December 2023.

The decision to maintain the forecast for three rate cuts in 2024 comes amid concerns over persistently high inflation despite recent data suggesting a slight easing.

Notably, inflation, though showing signs of moderation, remains elevated, with core consumer prices still significantly above the 2% target. The Fed's preferred inflation gauge, however, indicates some progress in containing inflationary pressures.

Chair Powell's Perspective

Fed Chair Jay Powell put stress on the gradual nature of inflation decline and the importance of gaining confidence in a sustainable move toward the 2% target. He hinted at a likely rate cut later in the year but held back from specifying a timeframe.

Updated Projections for 2024, 2025 & 2026

Fed officials expect the Fed funds rate to peak at 4.6% in 2024. That suggests the Fed will cut rates by 0.75%.The Fed has moved in 25-basis-point increments over the last year or so, indicating that the central bank expects to cut interest rates three times in 2024.

While the Fed slightly reduced its forecast for interest rate cuts in 2025, officials revised inflation projections upward for this year. Fed now projects core inflation peaking at 2.6% this year — higher than December's projection of 2.4% — before cooling to 2.2% in 2025 and 2.0% in 2026.

Officials see unemployment rising to 4.0% in 2024, lower than the prior projection of 4.1%. Unemployment is expected to tick higher to 4.1% in 2025 before falling to 4.0% in 2026.

The Fed also boosted its forecast for U.S. economic growth, with the economy now expected to grow 2.1% this year — up from December's 1.4% projection — before slowing down slightly to 2.0% in 2025 and remaining at that level through 2026.

Market Reactions

Immediately following the Fed announcement, markets were pricing in a 68.3% chance that the Fed will start cutting rates at its June meeting, up from 55.6% the day prior, according to data from the CME Group.

Growth ETFs in Focus

The maintenance of the same number of Fed rate cuts in the latest meeting bodes well for growth investing. However, we have highlighted low P/E growth ETFs that are still cheap in valuation as the investing backdrop is still edgy.

ETFs in Focus

Invesco S&P 500 Pure Growth ETF (RPG Quick QuoteRPG - Free Report) – Zacks Rank #2 (Buy); P/E: 10.64X

The underlying S&P 500 Pure Growth Index measures the performance of securities that exhibit strong growth characteristics in the S&P 500 Index. The fund charges 35 bps in fees.

First Trust Large Cap Growth AlphaDEX ETF (FTC Quick QuoteFTC - Free Report) – Zacks Rank #2; P/E: 16.47X

The underlying Nasdaq AlphaDEX Large Cap Growth Index is an enhanced index that employs the AlphaDEX stock selection methodology to pick stocks from the Nasdaq US 500 Large Cap Growth Index. The fund charges 59 bps in fees.

Invesco NASDAQ Next Gen 100 ETF (QQQJ Quick QuoteQQQJ - Free Report) – Zacks Rank #2; P/E: 17.73X

The underlying Nasdaq Next Generation 100 Index comprises securities of the next generation of Nasdaq-listed non-financial companies, that is, the largest 100 Nasdaq-listed companies outside of the Nasdaq-100 Index. The fund charges 15 bps in fees.

Invesco Dynamic Large Cap Growth ETF (PWB Quick QuotePWB - Free Report) – Zacks Rank #2; P/E: 22.27X

The underlying Dynamic Large Cap Growth Intellidex Index is designed to provide capital appreciation while maintaining consistent stylistically accurate exposure. The fund charges 55 bps in fees.