Jerome Powell

Fed meeting today, rate forecasts and Powell's words

What to expect from the Fed meeting today, January 31st? Analysts are wondering what the FOMC will decide in the meeting that began yesterday and will end today.
The spotlight is all on Powell's press conference and any announcements regarding the long-awaited turning point in rate strategy.
In fact, expectations remain high regarding the launch of an accommodating monetary policy, with a decrease in the cost of money, starting at least from spring.
The rate verdict will be published at 8pm Italian time, with the governor starting to speak half an hour later.
All real-time updates will be available in this article.
Last week the ECB decided to leave rates unchanged, without however anticipating dates for the first measure to reduce the cost of financing.
Lagarde specified that the board considered any debate on the topic to be premature, thus confirming a very cautious approach.
The Fed has also made little effort so far, despite having anticipated in the December dot plot that 50 basis points less is expected in 2024.
Therefore, if no surprises are expected regarding the fact that rates will remain unchanged at this meeting at the beginning of the year, doubts remain as to what the governor will actually say about future moves.
The forecasts for today's Fed meeting are therefore under the scrutiny of investors, analysts and politicians.
Fed meeting today: what will happen to rates? The Forecast A “dovish” turn at the Fed's December monetary policy meeting boosted investors' hopes that central bank tightening was over and that rate cuts were imminent.
At the moment, rates are stuck in a range of 5.25% to 5.5% More recently, several officials have pushed back against the perception that monetary policy easing is so close, saying they need further evidence that inflation returns to the central bank's 2% target and remains at that level before committing to lower interest rates.
Evidence that some sectors of the economy remain robust has supported this view.
The USA arrives at the meeting on January 31st with this macro evidence.
Inflation rose 3.4% from a year ago in December, down from a peak of 9.1% in June 2022, but recording its fastest pace in three months, according to the consumer price index (CPI ) of the Office.
Excluding the more volatile food and energy components, core prices rose 3.9% from a year ago, faster than the 3.8% rate expected by most economists.
The Fed's preferred indicator, the Commerce Department's personal consumption expenditure (PCE) index, indicated a faster improvement.
Prices rose 2.6% from a year ago in December, while core prices rose 2.9%, the lowest since March 2021.
Data showing the economy's resilience include retail sales and December consumer prices, which rose more than expected in December.
The Fed's first monetary policy decision for 2024 comes into this context, which still suggests prudence on rates.
On the eve of the meeting, three Fed representatives expressed their opinion and made it clear that they had not yet seen evidence to start easing monetary policy.
San Francisco Fed President Mary Daly said on Fox Business: “Neither unemployment nor inflation makes me think an adjustment is necessary.” Atlanta Fed President Raphael Bostic predicted that the first rate cut would not occur before the third quarter and Austan Goolsbee (Chicago Fed) stressed the importance of obtaining more relevant data.
In summary, the approach of this Fed meeting should still be wait-and-see.
“Based on information from official sources, it appears that the rate will remain unchanged in January,” commented Kar Yong Ang, financial market analyst at Octa.
“The Fed could start cutting rates in the spring, assuming it has enough data to be confident that inflation has been overcome,” he added.
ING strategists wrote: “The Federal Reserve is expected to keep the Fed funds target range unchanged at 5.25-5.50% next Wednesday, while continuing the process of reducing its balance sheet through quantitative tightening.” .
What to expect from Powell's words? The real attraction of the Fed meeting on January 31st will be Powell's press conference, with the question that all analysts are asking: when will the rate cut begin? Possible hints at a date could come from the governor.
Policymakers recently suggested they were ready to start discussing broad parameters for lowering rates after giving the topic only a passing mention at their last meeting in December.
Many have also indicated a willingness to consider rate cuts in the first half of 2024 if inflation falls faster than expected.
However, officials gave no signal that they intended to use their next meeting to prepare a rate cut for March.
“At this week's meeting we expect the Fed to take a neutral stance, with no intention of tightening or easing rates at the next meeting,” Michael Feroli, JPMorgan's chief US economist, wrote in a note.
The expert said that if Powell expressed something like “maintaining tight policy until we are confident that inflation is on track towards that goal,” then that would be a signal that no rate cuts are expected in March.
According to Bloomberg Economics, there is every reason for the Fed to take measures to cut rates in the coming months.
“We expect the Fed to begin lowering the federal funds rate target range in March in an effort to maintain a soft landing.” “The Fed can be patient,” said Ellen Zentner, chief U.S.
economist at Morgan Stanley, who expects the first rate cut to come in June.
Powell and his colleagues can take their time because they will not cut rates to counter an economic contraction, as has often happened in the past.
Instead, they will calibrate policy to inflation, acting only when prices have indeed fallen significantly, he added.
“Speculation on the short-term path of interest rates continues to be the dominant factor driving movements in financial markets,” said Lloyds Bank economist Nikesh Sawjani.
The Fed is currently facing a US economic picture that sees economic activity still holding up better than expected, even as inflation measures continue to fall.
This hardly suggests the economy urgently needs rate cuts, according to the analyst.
Today's Fed meeting, January 31, is therefore full of expectations, above all to begin to get clearer answers on what will happen in the coming months.

Author: A.W.M.

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