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Fed Chair Powell Signals Rate Cuts Unlikely by March Meeting

2024.02.01

 

Key Takeaways

  • Federal Reserve Chair Jerome Powell suggests rate cuts unlikely by March, aiming for more confidence in inflation control.
  • Stocks drop following Powell’s remarks, with the Dow Jones losing 300 points amid rate cut uncertainty.

Fed’s Cautious Stance on Rate Cuts

Federal Reserve Chairman Jerome Powell, in a recent statement, conveyed that the central bank is unlikely to be comfortable enough with the current inflation trajectory to consider cutting interest rates by its upcoming meeting in March. This announcement came during the Fed’s January meeting, where the benchmark interest rate remained unchanged.

 

Powell’s remarks, which suggested a delay in anticipated rate cuts, led to a notable downturn in the stock market. The Dow Jones Industrial Average notably fell by 300 points, reflecting traders’ disappointment who had been hopeful for earlier rate reductions to preclude a recession.

Fed’s Position on Future Rate Hikes

The Federal Reserve’s policy statement hinted at a halt in further rate hikes, albeit without any immediate plans for rate cuts. Powell’s comments further clarified this stance, indicating a continuation of the current policy at least until the next meeting.

 

Bill Adams, the chief economist at Comerica Bank, highlighted that the Fed is cautious due to past experiences where high inflation was underestimated. Powell’s approach suggests a desire to avoid repeating these misjudgments and waiting to see clear signs of inflation nearing the 2% target before initiating rate cuts.

Uncertainty on the Sequence of Rate Cuts

Powell refrained from committing to a plan of rate cuts post the initial reduction, emphasizing that any future decisions would be data-dependent. This stance aligns with the Fed’s focus on closely monitoring inflation and economic indicators before altering its monetary policy.

Upcoming Policy Decision Dates

The next two significant dates for the Federal Reserve’s policy decisions are March 20 and May 1. These meetings are being closely watched by traders and Wall Street strategists as potential junctures for the initiation of rate cuts, contingent on the trajectory of inflation and job growth.

 

The Fed’s preferred inflation measure, the personal consumption expenditures price index, will be a critical factor in their decision-making process. Before the March meeting, there will likely be only one more update to this index, but three more before the May meeting. Additionally, three federal jobs reports will be released before the May meeting, with the January report being a significant indicator to watch.

 


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