Policy rate is at peak for tightening cycle, Powell says
Powell said during his prepared remarks that the Fed has likely completed all the interest rate hikes it needs to in this economic tightening cycle. But he said there may not be cuts on the immediate horizon.
“We believe that our policy rate is likely at its peak for this tightening cycle and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell said during the conference.
“But the economy has surprised forecasters in many ways since the pandemic and ongoing progress toward our 2% inflation objective is not assured,” he added. “The economic outlook is uncertain and we remain highly attentive to inflation risks. We are prepared to maintain the current target range for the federal funds rate for longer if appropriate.”
— Alex Harring
Fed is looking for ‘continuing evidence’ on inflation, Powell says
Fed Chair Jerome Powell acknowledged that inflation has been falling in recent months, though not enough to convince the central bank that it can ease back on rates.
“The lower inflation readings over the second half of last year are welcome, but we will need to see continuing evidence to build confidence that inflation is moving down sustainably to our goal,” Powell said.
— Jesse Pound
FOMC seems ‘satisfied’ at the moment, says former Atlanta Fed president
The Federal Reserve’s January statement, released earlier this afternoon, indicates that the Federal Open Market Committee seems to be “reasonably satisfied with financial conditions at the moment,” according to Dennis Lockhart, the former president of the Atlanta Federal Reserve.
“The committee probably doesn’t really believe or have a lot of confidence they can manipulate market interest rates very much, so they just want to set the policy and let the markets react. I think their view is that at the moment, they’re clearly still restrictive, but at a satisfactory level,” he told CNBC’s “Power Lunch” on Wednesday.
Lockhart added that the FOMC seems to have added additional language indicating it is not ready to lower interest rates in an effort to “reduce the frenzy of an anticipation around a March move.”
— Lisa Kailai Han
Powell says ‘the path forward is still uncertain’
Federal Reserve Chair Jerome Powell said the U.S. economy has made some good progress, with inflation easing from its highs without signs of increased unemployment. Still, there is work to be done, he said.
“Inflation is still too high, ongoing progress in bringing it down is not assured and the path forward is uncertain,” Powell said.
“I want to assure the American people we are fully committed to returning inflation to our 2% goal.”
— Michelle Fox
Still unclear of a March cut, BMO’s Lyngen says
It’s still unclear if the Federal Reserve will move to cut rates in March after Wednesday’s statement, according to Ian Lyngen, head of U.S. rates at BMO.
“While this doesn’t take a March cut off the table completely, it also isn’t an endorsement of a move on March 20th,” he said in a note.
The strategist noted that the statement also omitted the reference to tighter financial and credit conditions, which is a nod to the fact financial conditions have eased notably.
— Yun Li
JPMorgan’s David Kelly sees rate cuts starting in June
The Federal Reserve has set the table for rate cuts starting in June, according to David Kelly, chief global strategist for JPMorgan Asset Management.
“It sounds to me like June, September, December is what they are thinking — three rate cuts this year —provided the economy keeps growing,” he said in an interview with CNBC following the release of the Federal Reserve’s statement.
“There doesn’t seem to be, at the moment, a sign that the U.S. economy is going to keel over and fall into recession any time soon,” he added. “Until they see greater damage — or potential damage — to the economy given to the huge run up in the markets we’ve seen, they just see the balance of risk more being on the side of inflation being sticky than the economy falling into recession.”
— Michelle Fox
See what changed in the latest Fed statement
There are lots of changes when comparing Wednesday’s Federal Open Market Committee statement with the one issued after the previous policymaking meeting in December. Click here to see all the differences and similarities.
— Alex Harring
Federal Reserve signals it’s not yet prepared to reduce rates
Central bank policymakers said they aren’t yet ready to start cutting rates, according to their meeting statement.
“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 statement said.
The news chilled investors, and stocks slipped slightly. The S&P 500 lost 0.9%, and the Nasdaq Composite was off 1.4%. The Dow Jones Industrial Average ticked down 0.1%.
Read more about the Fed’s rate decision here.
— Darla Mercado
Federal Reserve leaves rates unchanged
The Federal Reserve has left interest rates unchanged in January. It’s the fourth consecutive time that the central bank has decided to keep steady on rate policy.
The fed funds rate remains at a range of 5.25% to 5.5%.
— Darla Mercado
Where the markets stand before the Fed’s rate decision
The S&P 500 was down about 0.7%, while the Dow Jones Industrial Average fluctuated near the flatline, up about 17 points. The Nasdaq Composite was the underperformer of the three major averages, down 1.2%.
The 10-year Treasury yield traded at 3.967%, down 9 basis points, while the rate on the 2-year note was 4.248%, down 11 basis points.
— Darla Mercado
Markets should have tamer expectations for rate cuts, BlackRock’s Gargi Chaudhuri says
Strong economic data and a resilient labor market will allow the Federal Reserve to proceed with caution on rate cuts, says Gargi Chaudhuri, head of iShares Investment Strategy, Americas at BlackRock.
She is calling for four rate cuts this year, while the market is pricing for nearly six.
“Markets rallied after a surprisingly dovish December FOMC meeting, but stronger-than-expected growth data since then creates little urgency for the Fed to begin cutting in March,” Chaudhuri said.
Nevertheless, investors should still keep an ear out for other signs of policy shifts from the Fed — even if they don’t rise to the level of cutting rates.
“While we expect Fed Chair Powell to push back on expectations for a March cut, we expect the Fed could use this week’s meeting to advance plans to end Quantitative Tightening as the Fed appears to be considering tapering its balance sheet run-off,” she added.
— Darla Mercado
Wednesday’s main event will be the Federal Reserve’s statement
Markets are all but certain that the Federal Reserve will stand pat on interest rates Wednesday afternoon.
This time, the real star of the show will be the central bank’s post-meeting statement, which investors will pore over for clues on the next direction for rate policy.
They’re also focused on a key phrase and whether policymakers drop it: “In determining the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time.”
If the Fed leaves that clause in the text, it will suggest that policymakers are grappling with uncertainty. However, if they drop it this time, it could signal a path forward toward potential rate cuts.
Read more about what to look for in the Fed’s statement here.
— Darla Mercado, Jeff Cox
Read the full article here