Federal Reserve Chairman Jerome Powell on Wednesday dashed Wall Street’s hopes for an imminent rate cut after central bank officials left interest rates unchanged at decades-high rates.
“I think it’s unlikely that the committee will reach a level of confidence to cut rates by the March meeting, but we’ll have to wait and see,” Powell said, referring to the timing of the central bank’s next meeting. .
At a press conference after the two-day meeting, Chairman Powell said that the March interest rate cut was not the policy-making Federal Open Market Committee’s baseline scenario, and that the Fed had kept interest rates unchanged at 5.25% to 5.50%, the highest level in 22 years, as expected. Ta. Year.
“We do not expect it would be appropriate to lower the target range until we have greater confidence that inflation is sustainably moving towards the Fed’s 2% inflation target,” central bank officials said. ” he said.
“Inflation has eased over the past year but remains elevated,” the Fed said, reiterating that officials “continue to pay close attention to inflation risks.”
But the Fed also gave a nod to concerns about the employment side of its mission, paving the way for lower interest rates if inflation continues to decline in coming months as expected.
“While it would be appropriate to begin reducing policy restraints at some point this year, the economy has surprised forecasters in many ways since the pandemic, and the continued progress toward the 2% inflation target is likely,” Powell said. Progress is not guaranteed.”
After Chairman Powell’s press conference, the Dow Jones Industrial Average fell nearly 300 points.
Analysts had expected three rate cuts this year, with many expecting the first to come as early as March. But those hopes faded in December when the latest inflation rate was announced at 3.4%, which was higher than expected.
“More encouraging inflation data is still needed before the initial rate cuts are lifted, and it’s clear the Fed is in no hurry to ease as quickly as market prices,” said Michael Brown, a market analyst at Pepperstone. ” he said.
The Fed’s previous statement on Dec. 13 set out the conditions under which it would consider “further policy tightening” and ruled out any consideration of interest rate cuts.
“We’re not quite there yet,” said Greg McBride, chief financial analyst at Bankrate, regarding the timing of the first rate cut.
“While the Fed is certainly backtracking on the concept of a March rate cut, once again dashing investor expectations, it remains open to options and remains non-committal as a central bank.”
Persistent high inflation threatens President Joe Biden’s re-election prospects this year.
Progressive Democrat Ro Khanna urged the Fed to start lowering interest rates before it does, or risk paving the way for Donald Trump’s presidential bid.
Any rate cut would come as a relief to Americans, who are increasingly defaulting on their credit cards due to the economic squeeze.
Credit card balances exceed $5 trillion for the first time in more than a decade, and all stages of credit card delinquency (30-day, 60-day, and 90-day delinquency) are higher than in 2019, according to a Philadelphia Fed report. are doing.
The 30-day delinquency rate for credit card holders was 3.19%, up from 2.76% last quarter, according to Philadelphia Fed researchers.
According to the data, those who haven’t paid for more than 60 days jumped from 1.91% to 2.21%, while those who are seriously delinquent for more than three months rose from 1.32% to 1.52%.
On the labor front, annual wage growth accelerated and the economy added a surprisingly strong 216,000 jobs in December.
While it’s good news that the U.S. labor market has defied expectations in the face of inflation, such large pay increases mean the Fed’s efforts to slow the economy have failed.
The consumer price index for January, which shows changes in prices of daily goods and services, is scheduled to be released on February 13th.
On Tuesday, hedge fund billionaire Ken Griffin warned of widening budget deficits. The budget deficit could balloon to $1.7 trillion by the end of 2023, a risk that several business leaders have cited as one of their biggest economic concerns.
“We’re still dealing with reckless levels of federal spending. It’s creating an economic context that’s very different from any point in history,” Griffin told the Managed Funds Association Conference in Miami. – Said at a network meeting.
In a wide-ranging interview, Mr. Griffin also attacked what he saw as the anti-business stance of President Biden’s administration.
“This administration appears to be very focused on regulations that reduce access to public market capital… otherwise we have to make it more expensive to do business,” said the nation’s largest hedge fund. added Griffin, who recently announced plans to return $7 billion in profits to investors after a year of double-digit profits.
