FED Reluctant to Start Cutting Rates

- 2 February, 2024

KEY ISSUES

Federal Reserve tentatively suggests no more rate increases, but uncertain of stability amid talks of cutting.
The Federal Open Market Committee removed language suggesting a willingness to continue increasing rates until Fed’s 2% inflation goal was achieved.
No plans to cut rates at this time with the average still above the central bank’s target.

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Reserve & Rates

On Wednesday, January 31st, the Federal Reserve hinted that it won’t raise interest rates, but made it clear that it is not ready to lower them either. An original statement was made following a two-day meeting of the central banks, but later altered by the Federal Open Market Committee that indicated a desire to keep raising rates until inflation had continued below the Fed’s 2% inflation goal.

Although, another statement was released that there are no plans to cut rates with inflation still looming above the central bank’s target. The provided statement provided all but concrete guidance that is finished hiking rates, only mentioning efforts to “adjust” the policies.

“The Committee 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%”, mentioned in the released statement (TR).

Jerome Powell’s Take

Jerome Powell mentioned in his most recent address that policymakers are waiting to see additional data to verify that trends are continuing in the correct direction and noted that a March rate cut was unlikely. “I do not think it is likely that the committee will reach a level of confidence by the March”, Powell added.

Markets took the relatively well only sliding minimally after Powell commented about his doubts on a March cut. Dow Jones Industrial Average surrendered over 300 points in the session while Treasury yields took a nose dive. Futures pricing swung slightly, with the market assigning 64% chance the Fed would remain still at the March 19-20 meeting according to CME Group predictions.

While the committee’s words consolidated what policymakers would consider when assessing, it did not explicitly squash the chance of more increases. Officials do believe it would take 12 to 18 months for adjustments to take effect, upon the last Fed hike in July 2023 after tightening in March 2022.

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