1/31/2024: Fed Kept Rates Unchanged
no more tightening but no imminent rate cuts
Today is the FOMC announcement day. As expected, the Fed kept the rates unchanged at 5.25% - 5.5%. But we are seeing big changes in the FOMC statement as shown above. First, the Fed took the sentence “The U. S. Banking system is sound and resilient” off the statement. That was interesting. Does this mean the banking system is kind of in trouble? Second, the Fed removed the further tightening language from the statement and replaced it with the policy for potential rate cuts in the future. But of course any future changes will be data dependent. The statement is definitely more dovish compared to the previous one.
During the press conference, JPow said the FOMC wants to have greater confidence before they start cutting rates. They will also continue their current pace of quantitative tightening and in the March meeting FOMC members will discuss what they are going to do with the ginormous Fed balance sheet. The Fed’s current stance on monetary policy doesn’t seem to be dovish enough for Wall Street’s expectations of a March rate cut. Stocks tanked. S&P 500 fell 1.6% and the Dow fell 300+ points today. Stock markets are always volatile on the FOMC announcement day. Today was no exception.
Powell said something very important.
He doesn't want to cut rates on a one touch of 2%. He wants to see it sustainably at that level. Unless unemployment is elevated.
This is the right policy for the fed. It maintains the feds dual mandate and ensures inflation is intact dead.
It is a big reversal of the proactive cut narrative the fed alluded to at the last meeting that sent markets ripping higher.