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Investing.com — The Federal Reserve left interest rates unchanged Wednesday, though signaled no rush to cut rates as more confidence was needed that “elevated” inflation continues to slow toward target at a time of “solid” economic growth and strong job gains.
Fed sees rates higher for longer as inflation battle continues; Powell shoots down March cut hopes
“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 percent,” the Fed said in its monetary policy statement on Wednesday.
Fed chairman Jerome Powell dealt a further blow to a March rate cut, saying it was unlikely the level of confidence would have improved enough by March to cut rates.
“Based on the meeting today, I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting, to identify March as the time to do that,” Powell said in response to a question about whether the Fed could cut in March. The Fed chief stressed, however, that future policy decisions would depend on incoming data.
The odds of a March cut were dealt a blow, falling to about 47% from about 65% prior to the statement.
Fed’s tightening bias in rearview mirror
While there isn’t a pressing need to rush to cut rates, the statement offered clues that the Fed has shifted to less hawkish stance as prior remarks that were present in Fed’s December statement referring to “additional policy firming,” were removed.
“The FOMC statement was broadly as we expected, moving towards a definitively more neutral stance,” Morgan Stanley said in a note that followed the decision, adding that a June cut remains in play.
“We continue to expect the first rate cut in June, and four 25bp cuts in total this year followed by an additional 200bp in 2025,” it added. That is above the Fed’s December projection for three rate cuts.
Soft landing gets boost as Fed sees more balanced risks to inflation, labor market goals
The Federal Open Market Committee, or FOMC, left its benchmark rate in a range of 5.25% to 5.50%.
It was the fifth-straight meeting that the FOMC decided to keep monetary policy steady as recent economic data — showing slowing inflation, but a still strong labor market — has fueled expectations that the Fed could deliver a soft landing by reining in inflation to its 2% target without causing a major spike in unemployment.
The Fed appeared to be endorsing view, acknowledging in the statement that “risks to achieving its employment and inflation goals are moving into better balance.”
The latest reading on core personal consumption expenditure prices, the Fed’s preferred measure of inflation, fell below 3% on an annualized basis in December for the first time since April 2021. But while the Fed welcomed the slowdown in inflation over the past year, the pace remains “elevated.”
Source: Investing.com
