Fed chair Jerome Powell had announced that interest rate cuts would come in 2024
The US Federal reserve announced today that it will leave its benchmark interest rate unchanged between 5.25 and 5.5 per cent. This follows a hold at the December meeting, where Fed chair Jerome Powell forecasted at least three interest rate cuts to come later in 2024.
“Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated,” a press release announcing the decision to hold reads. “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.”
The decision to hold was expected by economists, as US CPI remains above 3 per cent. GDP growth in the United States has cooled somewhat, but remains stronger than expected, largely due to resilience among US consumers. That resilience has been seen as removing some pressure on Powell to move more quickly towards cuts.
Ahead of the meeting, analysts noted that the inclusion or removal of one important piece of language may indicate where the Fed is going with interest rates. The phrase, “In determining the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time,” has been included in statements for the past year or more.
The phrase was absent from the statement, however the following phrase was present: “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
In a recent interview with WP, Designed Securities portfolio manager John De Goey said it was unlikely for the Fed to cut both today and at their next meeting in March. He believes that the Fed will need to see two consecutive months of CPI data below three per cent before they begin to cut.
David Baskin, Chairman and President of Baskin Wealth Management, told WP that while the Fed holds rates steady, it's unlikely that the Bank of Canada will start its own rate cuts.
