For the fourth consecutive meeting, the central bank elected to not raise the federal funds rate.
The first FOMC meeting of 2024 looked like the last several of 2023, as the Fed once again opted to hold the federal funds rate at its current target range of 5.25%-5.50%. The January 31, 2024, decision was largely expected by markets and marks the fourth consecutive meeting with no rate hike by the central bank.
The newsworthy event to come out of the two-day session is that the central bank doesn’t appear eager to enter rate cutting territory terribly soon. In the post-meeting statement, the Fed indicated it is going to take a wait-and-see approach with regard to inflation moving closer to its stated 2% target. “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 two percent,” read the statement.
“As we expected, the Fed suggested it is in the neutral zone when it comes to policy,” said Raymond James Chief Investment Officer Larry Adam. “The Fed will remain pragmatic and patient as it reiterated that it will be data dependent in determining when to lower rates, which we believe will be by midyear as inflation moves toward two percent.”
Adam noted that the use of the word toward by the Fed emphasizes his team’s view that inflation doesn’t need to hit 2% before the Fed cuts rates.
Unsurprisingly, markets reacted unfavorably to this news, given that a majority viewpoint had the Fed cutting rates up to six times in 2024, beginning in March. Following the meeting, Powell indicated in his post-meeting press conference that the path forward to lowering inflation is uncertain but did add that the tightening cycle has likely reached its apex.
“We believe that our policy rate is likely at its peak for this tightening cycle and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” said Powell.
The FOMC removed all verbiage discussing further policy firming or rate hikes, suggesting that the Fed has fully transitioned from its hawkish stance, but remains attentive to evaluating incoming data, noted Raymond James Chief Economist Eugenio Alemán.
“We continue to believe that the Fed will be less dovish than the market expects and lower rates three to four times, starting around the middle of the year,” said Alemán.
Inflation has continued to trend lower, with the Fed’s preferred measure of inflation, the Personal Consumption Expenditure price index, trending below 3% for several months. However, the Fed remains data dependent and will continue to monitor incoming data before its next meeting in March.
All expressions of opinion reflect the judgments of the Raymond James Chief Investment Officer and Raymond James Chief Economist and are subject to change.
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