WASHINGTON: The US Federal Reserve voted on Wednesday to leave interest rates unchanged for the fourth consecutive meeting, while signaling it is moving toward a future cut – but possibly not before May.
fed It was keeping its benchmark lending rate steady at a 23-year high, between 5.25 and 5.50 percent, it confirmed in a statement.
The central bank has a dual mandate to keep both inflation and the unemployment rate low, and recent meetings have focused heavily on reining in inflation, with an eye on the long-term goal of two percent.
On Wednesday, it said “the risks to achieving its employment and inflation targets are moving towards a better balance,” suggesting a greater emphasis on jobs going forward.
But it also said the rate-setting Federal Open Market Committee (FOMC) is unlikely to start cutting interest rates “until it has confidence that inflation is on a sustained path toward two percent.” Is”.
“We believe our policy rates are likely to be at their peak during this tightening cycle,” the Fed chair said. jerome powell told reporters at a press conference after the rate decision.
He said ‘almost everyone’ on the 19-person FOMC was in favor of a cut in 2024, but no action was likely to be taken immediately after the next meeting in March.
“I don’t think by the March meeting the committee will be able to reach the level of confidence that March will be considered a time for cuts,” he said.
Powell’s comments “reinforce our long-held view that the Fed will begin cutting rates in May,” EY’s chief economist said. gregory daco wrote in an investor note after the press conference.
Stocks on Wall Street closed higher on Wednesday as traders digested the news.
– Strong Data –
After inflation surged following the pandemic, exacerbated by the Russian invasion of Ukraine, the Fed quickly raised interest rates to slow rising prices — with surprising success.
The US central bank’s preferred inflation measure, which strips out volatile food and energy prices, has now fallen below an annual rate of 3.0 percent, while economic growth remains strong at 2.5 percent through 2023 and unemployment remains near historic lows. .
Fresh data published by ADP ahead of the Fed’s rate decision on Wednesday showed that private sector hiring fell more than expected this month, further underscoring the Fed’s progress.
“The economy is broadly returning to normal, and the labor market is also returning to normal,” powell Told reporters.
“Powell expressed slightly more confidence that inflation has gone into this meeting less than we expected,” Citi economists wrote in a note to clients after the meeting.
“But by providing guidance from March, they also signaled that the Fed is not too eager to cut rates,” he said.
– Need for ‘great confidence’ –
At its December rate meeting, the Fed raised its economic outlook for the coming year, and indicated it expected three quarter-percentage-point rate cuts in 2024, raising optimism in financial markets that the central bank could soon Can cut rates sooner than later. march.
When the Fed lowers interest rates, American consumers get cheaper access to credit, meaning the cost of everything from car loans to mortgages goes down, while company valuations see an increase.
Traders and analysts at the meeting were divided between those who believed the first rate cut would occur in March, and those who expected the Fed to proceed more cautiously and move in May instead.
Futures traders, who in recent weeks had been hesitant about a potential cut in March, have moved firmly away from such a position, according to an AFP analysis of CME Group data.
They are more confident about a cut at the next meeting, giving a more than 90 percent chance that the Fed’s key lending rate will be lower by May 1 than it is now.
“There was nothing in the post-meeting statement that warrants a change to our forecast for the first rate cut in May,” said the chief US economist at Oxford Economics. ryan sweet it said in a note to customers on Wednesday.
“Powell’s guidance, along with some potential volatility in upcoming headline inflation readings, led us to drop our call for the first rate cut in June,” Citi economists wrote.
“But we wouldn’t be too surprised by the first cut in May.”
fed It was keeping its benchmark lending rate steady at a 23-year high, between 5.25 and 5.50 percent, it confirmed in a statement.
The central bank has a dual mandate to keep both inflation and the unemployment rate low, and recent meetings have focused heavily on reining in inflation, with an eye on the long-term goal of two percent.
On Wednesday, it said “the risks to achieving its employment and inflation targets are moving towards a better balance,” suggesting a greater emphasis on jobs going forward.
But it also said the rate-setting Federal Open Market Committee (FOMC) is unlikely to start cutting interest rates “until it has confidence that inflation is on a sustained path toward two percent.” Is”.
“We believe our policy rates are likely to be at their peak during this tightening cycle,” the Fed chair said. jerome powell told reporters at a press conference after the rate decision.
He said ‘almost everyone’ on the 19-person FOMC was in favor of a cut in 2024, but no action was likely to be taken immediately after the next meeting in March.
“I don’t think by the March meeting the committee will be able to reach the level of confidence that March will be considered a time for cuts,” he said.
Powell’s comments “reinforce our long-held view that the Fed will begin cutting rates in May,” EY’s chief economist said. gregory daco wrote in an investor note after the press conference.
Stocks on Wall Street closed higher on Wednesday as traders digested the news.
– Strong Data –
After inflation surged following the pandemic, exacerbated by the Russian invasion of Ukraine, the Fed quickly raised interest rates to slow rising prices — with surprising success.
The US central bank’s preferred inflation measure, which strips out volatile food and energy prices, has now fallen below an annual rate of 3.0 percent, while economic growth remains strong at 2.5 percent through 2023 and unemployment remains near historic lows. .
Fresh data published by ADP ahead of the Fed’s rate decision on Wednesday showed that private sector hiring fell more than expected this month, further underscoring the Fed’s progress.
“The economy is broadly returning to normal, and the labor market is also returning to normal,” powell Told reporters.
“Powell expressed slightly more confidence that inflation has gone into this meeting less than we expected,” Citi economists wrote in a note to clients after the meeting.
“But by providing guidance from March, they also signaled that the Fed is not too eager to cut rates,” he said.
– Need for ‘great confidence’ –
At its December rate meeting, the Fed raised its economic outlook for the coming year, and indicated it expected three quarter-percentage-point rate cuts in 2024, raising optimism in financial markets that the central bank could soon Can cut rates sooner than later. march.
When the Fed lowers interest rates, American consumers get cheaper access to credit, meaning the cost of everything from car loans to mortgages goes down, while company valuations see an increase.
Traders and analysts at the meeting were divided between those who believed the first rate cut would occur in March, and those who expected the Fed to proceed more cautiously and move in May instead.
Futures traders, who in recent weeks had been hesitant about a potential cut in March, have moved firmly away from such a position, according to an AFP analysis of CME Group data.
They are more confident about a cut at the next meeting, giving a more than 90 percent chance that the Fed’s key lending rate will be lower by May 1 than it is now.
“There was nothing in the post-meeting statement that warrants a change to our forecast for the first rate cut in May,” said the chief US economist at Oxford Economics. ryan sweet it said in a note to customers on Wednesday.
“Powell’s guidance, along with some potential volatility in upcoming headline inflation readings, led us to drop our call for the first rate cut in June,” Citi economists wrote.
“But we wouldn’t be too surprised by the first cut in May.”
