Powell: Federal Reserve is on track to cut rates, though not likely for months
WASHINGTON — 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.
ADVERTISING
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.”
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.
