The Federal Open Market Committee (FOMC), made up of 12 members including Chairman Jerome Powell, announced in March 2024 the expectation of interest rate cuts for the years 2026 and 2027. This decision occurs in a context where the US stock market remains the second most expensive in recent history, without concrete guarantees that these adjustments will be implemented.
Between 2019 and 2025, the S&P 500 recorded a minimum increase of 16% in six of the seven years evaluated, reflecting consistent performance. However, along with the Nasdaq Composite and the Dow Jones, these indices showed normalized double-digit annual returns in the same period. Despite these numbers, the FOMC warned of risks related to inflation, which has remained above the level considered ideal by the Federal Reserve since 2021.
The inflationary scenario has been aggravated by the conflict that began on February 28, 2024 in Iran, which affected the Strait of Hormuz, a crucial point for global energy supply. Consequently, in the minutes of the March meeting, the FOMC pointed to the possibility of a federal funds rate increase if the energy crisis and the tariffs imposed during Donald Trump’s administration persist. According to data from the Federal Reserve Bank of Cleveland, the forecast for inflation in April 2024 is around 3.6%, indicating the difficulty in controlling the price index.
Therefore, even with expectations of rate reductions in the coming years, the body shows caution amid the unstable economic environment. Thus, the trajectory of the United States’ monetary policy will continue to be conditioned by the unfolding of these global and domestic factors, which directly influence the Fed’s decisions.
Context and Technical Aspects of the Market and Fed Actions
The Federal Open Market Committee (FOMC) minutes are released about three weeks after each meeting and provide detailed information about the monetary policy decisions made by the Federal Reserve (Fed). This document is essential for investors and analysts to understand the intentions of the American central bank regarding the economy and the federal funds rate.
The FOMC has the primary responsibility of controlling the United States’ benchmark interest rate and conducting open market operations, directly influencing the cost of credit and the economy’s liquidity. These actions aim to maintain economic stability, especially in the face of recent challenges such as geopolitical tensions.
One of the events that most recently affected the market was the war in Iran, which caused the largest disruption in global energy supply in modern history. The conflict generated a significant increase in the price of oil, raising transportation and production costs in various industries in the United States.
The closure of the Strait of Hormuz further intensified this pressure, as this route is crucial for oil exports in the global market. Consequently, the impact fell heavily on the American economy, which depends on stability in energy supply for its functioning.
In recent history, the years in which the S&P 500 index posted the highest returns were precisely those that recorded record stock purchases and monetary easing policies, with interest rate cuts. This correlation reinforces the importance of the Fed’s decisions for the performance of financial markets.
Since September 2024, the Fed has initiated a gradual easing of the interest rate, trying to balance the effects of persistent inflation and external shocks. However, reports indicate that the market still faces uncertainties due to geopolitical conflicts and the difficulty in containing inflation.
With expectations of interest rate cuts high months ago, the scenario changed, and today these projections are being revised. The combined influence of the war in the Middle East and trade tariffs has led to decisions that may contradict the stimulus initially expected by the market.
Thus, the conclusion of the Fed’s monetary policy process still depends on the analysis of multiple economic and geopolitical factors. In addition to the internal review, the next step will involve monitoring external developments, which may require adjustments in the American central bank’s stance at upcoming meetings.
