Powell: Fed on track to cut rates, not likely for months
>> Interest rate cuts are coming. Just not yet.
The Federal Reserve delivered that message Wednesday, first in a policy statement and then in a news conference at which Chair Jerome Powell reinforced it.
The Fed did signal that it's nearing a long-awaited shift toward cutting rates, evidence that its officials have grown confident that they're close to fully taming inflation. No longer does its policy statement say it's still considering further rate hikes.
Yet the officials made clear that the first rate cut is likely months away. Their statement said they don't think it would be time to cut rates “until it has gained greater confidence that inflation is moving sustainably” to their 2% target.
Investors and some economists had been holding out the possibility that the Fed might cut as early as its next meeting in March. That now appears off the table.
“I don't think it's likely that the committee will reach a level of confidence by the time of the March meeting” to start cutting rates, Powell said at his news conference.
The central bank kept its key rate unchanged at about 5.4%, a 22-year high. But the changes to its statement — compared with its last meeting in December — show that it has moved toward considering rate reductions while still maintaining flexibility.
“There is nothing in Powell's remarks or the statement that leads us to worry about the basic story of `good news' cuts starting soon enough,” Krishna Guha, an economics analyst at investment bank Evercore ISI, said in a note to clients.
In December, the Fed's policymakers had indicated that they expected to carry out three quarter-point rate cuts in 2024. Yet they have since said little about when those cuts might begin, and some senior officials stressed that the Fed will proceed cautiously.
On Wednesday, Powell said the Fed doesn't need to see significant changes in the inflation data for it to cut rates. It just needs to see the inflation slowdown continue. Prices have increased at just a 2% annual rate in the past six months, according to the Fed's preferred measure.
“It's not that we're looking for better data — it's just that we're looking for a continuation of the good data that we've been getting,” he said. “We just need to see more.”
Wall Street down
The central bank's message Wednesday — that it's edging closer to cutting rates but not planning to do so anytime soon — disappointed traders on Wall Street. Losses in the stock market accelerated after Powell's news conference began.
The change in the Fed's stance comes as the economy is showing surprising durability after a series of 11 rate hikes helped drastically slow inflation, which had hit a four-decade high 18 months ago. Growth remains healthy: In the final three months of last year, the economy expanded at a 3.3% annual rate, the government said last week.
The Fed is assessing inflation and the economy at a time when the intensifying presidential campaign is pivoting in no small part on voters' perceptions of President Joe Biden's economic stewardship. Republicans in Congress have attacked Biden over the high inflation that gripped the nation beginning in 2021 as the economy emerged from recession. But the latest economic data — ranging from steady consumer spending to solid job growth to the slowdown in inflation — has been bolstering consumer confidence.
At his news conference, Powell said the Fed welcomes signs of economic strength.
“We want to see strong growth and a strong labor market,” the Fed chair said. “We're looking for inflation to come down, as it has been coming down for the last six months.”