Officials acknowledge ‘modest further progress’ on prices
Fed boosts estimate of long-run neutral rate further
Federal Reserve officials penciled in just one interest-rate cut this year and forecast more cuts for 2025, reinforcing policymakers’ calls to keep borrowing costs high for longer to suppress inflation.
They now see four cuts in 2025, more than the three previously outlined.
The Federal Open Market Committee adjusted language in its post-meeting statement released Wednesday, noting there has been “modest further progress toward the committee’s 2% inflation objective” in recent months. Previously, the statement pointed to a “lack” of further progress.
The S&P is still up 0.96% and the 10 year is at 4.29% – no major reaction.
The 10 year treasury dropped from a high of 4.195 on 1/25 to 3.942 today, 01/31 – the day the Feds and Chair Powell was clearly signaling no chances of a rate cut at the March Fed meeting.
Intuitively the yields should have gone up – is there something else at play.
I believe Yellen’s dovish nod on 1/29 was the main catalyst for the drop in rates and clearly that seems to be overriding Chair Powell’s comments after the FOMC meeting.
Simply, if the government decides it needs to borrow more, it doesn’t get to borrow at cheap rates; the private sector will naturally charge more, which means interest rates go up. Now if Powell’s boss signals that borrowing will be a) less than anticipated this quarter b) borrowing intervals and amounts will be regularly spaced out, it’s a clear dovish signal that the government doesn’t want interest rates going up in an election year.
Inflation has eased from its highs without a significant increase in unemployment— “that is very good news,” Federal Reserve Chair Jerome Powell said Wednesday after the central bank kept its policy rate unchanged for the fourth straight meeting. But he followed that up with inflation still remains above the Fed’s 2% goal. “We need more evidence to confirm what we think we’re seeing,” Powell said.
It will likely be appropriate to dial back the Fed’s policy rate at some point this year, he said.
Powell repeats that the Fed will move “carefully” in considering when to cut rates. He doesn’t think that the FOMC is likely to cut at the March meeting.
While he sees some risk that inflation reaccelerates, “the greater risk is that inflation will stabilize at a rate over 2%.”
He declined to say the economy has achieved a soft landing. “We’re not declaring victory at this point. We have a ways to go.”
“There was no proposal to cut rates,” Powell said. Some members did discuss their rate path. Also, he said there was a broad range of views.
“If we saw an unexpected weakening in the labor market, that would weigh on cutting sooner.”
