The Fed said Wednesday it does not expect any rate cuts in the near future and kept its interest rate target unchanged.
The Fed said in a statement at the end of its two-day monetary policy meeting: “Until there is greater confidence that inflation is on a sustained path toward 2%, the Committee does not believe it is appropriate to lower the target range.” I don’t think so.”
Financial markets had priced in a roughly 40% chance that the Fed would lower its interest rate target at its next meeting in March, and viewed it as almost certain that it would be lowered by May. The market is pricing in five or six rate cuts this year.
The Fed’s statement appears aimed at distancing the market from this view. In particular, it appears to be intended to send a message that the Fed has no plans to cut rates at its next meeting in March.
The statement also challenges the claim of many economists, especially those associated with Democratic Party politics and the American left, that the war on inflation has already been won.
I missed this, but the New York Fed’s underlying inflation measurements confirm the war is over and we won. pic.twitter.com/d64KKPzwL6
— Paul Krugman (@paulkrugman) January 30, 2024
“Recent indicators suggest that economic activity is expanding at a steady pace,” the Fed said in a statement. “Since early last year, employment growth has slowed but remains strong and unemployment remains low. Inflation has eased over the past year but remains high.”
The Fed has kept its benchmark interest rate target at 5.25% to 5.50% since it last raised rates in July.
The Fed’s statement confirmed that the Fed has reversed course from raising interest rates. While previous statements referred to the possibility of “policy consolidation,” the latest statement refers to “adjustment.” This indicates that the Fed has moved from tightening to neutrality.
“In considering adjustments to the target range for the federal funds rate, the committee will carefully evaluate upcoming data, developments in the outlook, and the balance of risks,” the Fed said.
Many expected the Fed to confirm a policy shift in December, but many expected the Fed to confirm that it would not be appropriate to cut rates until it had firm confidence that inflation was sustainably returning to 2%. I was surprised that the wording that “there is” was added.
