US Fed Holds Rates Steady, Not Yet Ready for Cuts

0:00

/1861

1×

Facts

• The US Federal Reserve announced on Wednesday that it would hold interest rates steady, signaling that it would abandon its policy of continued rate hikes to bring inflation down to its goal of 2%. However, the Fed also poured cold water on hopes that it would start cutting rates for the first time in years.¹
• The Federal Open Market Committee (FOMC) met for the first time this year and wrapped up its two-day meeting by releasing a statement that removed language about rate hikes.²
• Despite removing this language, the FOMC maintained a neutral tone about future rate slashes, acknowledging that, while cooling, inflation remains above 2%. The Committee added that it does not expect to reduce rates “until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”³
• The benchmark rate remains at a 22-year high of roughly 5.4%, and Fed Chair Jerome Powell said that the central bank will likely hold rates steady at the FOMC’s next meeting in March. As inflation soared over the last two years, the Fed implemented 11 consecutive rate increases before pausing rates as inflation cooled.⁴
• The rate pause was widely expected, but the stock market fell Wednesday afternoon after Powell signaled that rate cuts aren’t on the horizon in the coming months. The Dow Jones fell 0.8%, while the S&P 500 and Nasdaq Composite fell 1.6% and 2.2%, respectively.⁵
• Meanwhile, labor reports released Wednesday indicated that job growth and wages are slowing down, and the Labor Department reported that a key employment index increased at just 0.9% in Q4 of 2023, the smallest rise since Q2 of 2021.²

Sources: ¹ABC News, ²CNBC, ³FOX News, ⁴Associated Press and ⁵CNN.

Narratives

• Establishment-critical narrative, as provided by Economic Policy Institute. Thankfully, the Fed seems to be moving beyond its overly hawkish policy of nonstop rate hikes, but instead of keeping rates constant and stalling the economy until inflation reaches 2%, it should cut interest rates immediately and allow the economy to grow. While some say the Fed is being moderate in its current approach, the fact remains that rates are still at a 22-year high. The Fed’s policy has done little to bring down inflation, and any cool-down is due to natural economic cycles.
• Pro-establishment narrative, as provided by NPR Online News. The Fed has taken a deliberate approach to its rate-setting policy, and it seems like it has moved past its series of rate hikes. However, the Fed is rightfully wary of decreasing key rates as soon as the economy gets stronger. While some investors may get frustrated by this approach, the Fed’s patience has allowed the economy to continue growing at a stable rate while also slowing down rampant inflation. There are many moving parts that factor into rate decisions, and the Fed is prudently waiting for the economic picture to become clearer.

Predictions