The move, widely expected, was nonetheless watched closely as the first meeting of 2024 for a sign that the Fed is nearing rate cuts….reports Asian Lite News
The Federal Reserve on Wednesday did what everyone expected, holding interest rates steady for now. But it also avoided saying anything about what it plans to do with rates in the future, dashing hopes for now that rate cuts are in the offing soon. Those looking for tea leaves will, however, seize on the exact phrasing of the Fed’s statement that may have offered a slight inkling the central bank’s monetary policy committee is adjusting its stance.
“The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance,” the statement read. “The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.”
Before markets could go off to the races, the Fed also threw a cautionary comment into the statement. “The Committee does not expect it will be appropriate to reduce the target range (of its overnight lending rate) until it has gained greater confidence that inflation is moving sustainably toward 2%.”
The move, widely expected, was nonetheless watched closely as the first meeting of 2024 for a sign that the Fed is nearing rate cuts. Most observers believe it will happen in late spring, but there is a small chance of a reduction in rates at the central bank’s next meeting in March. That now seems like wishful thinking.
Indeed, Chairman Jerome Powell seemed to take a March cut completely off the table in his comments at his press conference, saying it was “probably not the most likely case or the base case.”
Powell said that while inflation has come down in the past six months, with the core rate excluding energy and foods of the metric he most closely watches down to the Fed’s 2% target, he and the other members of its monetary policy committee wants to see a little more confirmation of the trend.
Over 12 months, the core rate has come down to 2.9%, he pointed out, adding, “We’re wanting to see more data. You’ve had six good months, but what is really going to shake out.” At the same time, he suggested that if “we saw an unexpected weakening in the labor market that would certainly weigh on moving sooner.”
Markets sold off after the announcement, with the Dow Jones Industrial Average down a modest 70 points but that drop hastened as Powell spoke, with the average about 200 points lower by 3 p.m.
“I am not surprised the Fed maintained current rates,” said Greg Friedman, principal and CEO of Peachtree Group, a real estate investment firm. “I expect they will be very data-driven on when and if they will cut rates, but if they do, it will be in the latter half of the year.”
But recent economic data – from the fourth quarter report on gross domestic product to last week’s benign reading on inflation – has supported the narrative of a resilient economy that has overcome the drag of high interest rates and a labor market that remains good but not so strong as to ignite wage inflation.
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