The Federal Reserve (Fed) kept interest rates at 5.25%-5.50%, the highest level in 23 years, after this week's meeting that concluded this Wednesday. The big unknown was, however, figuring out when the cuts will begin and how many there will be this year. Everything indicates that the United States central bank continues with the idea of making three cuts of a quarter each in 2024.
The stock market welcomed this decision with a slight rise in the Down Jones. This is the fifth pause in terms of leaving rates at the same level. The Fed was forced to keep them in this elevated range for longer than the markets had considered and the US central bank anticipated, according to analysts. This situation has been reached due to the resistance of inflation. In February, prices rose 0.4% from one month to the previous month and stood at 3.2% in the annualized calculation, one tenth more than in January.
A part of these analysts maintained that there would be a change in the Reserve and it would only make two cuts this year, not before the summer, instead of the three that had been pointed out after the meeting last December, in the face of the problems in completing the which is called “the last mile” in the fight against inflation. But everything indicates that the Fed has not changed its trajectory and plans to make three cuts throughout 2024. Its statement is practically identical to that of January.
When this detente will begin also obtained a response from the president of the Federal Reserve, Jerome Powell, similar to the one he already gave on the previous occasion. "Sometime this year," he noted of the start of the cuts. When asked about June, he insisted. "We go meeting by meeting. In this week's meeting we have not talked about future issues. We decide based on the data," he stressed.
This restrictive policy has not prevented the labor market from resisting and even expanding. In February, 275,000 jobs were created, well above economists' expectations, in line with what has happened over recent months, while the unemployment rate remained at 3.9%, which means which remains below 4% for a prolonged period as has not been recorded in half a century.
Various analysts bet on the first cut between July and September. This would mean a new delay in the calendar, since after March was ruled out, June was targeted. This means that central bank governors show less confidence that inflation is on track to drop to 2%, the goal set by the Federal Reserve. However, other experts maintain June as the time to lower the cost of money.
Powell only encouraged speculation. In his comment at the beginning of the press conference, he indicated that the change would come "fairly soon." This led to thinking if it could be as early as May. "Pretty soon are words we use to say pretty soon," he replied when asked for clarification.
“The committee does not consider it appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” Fed Chairman Powell warned in his appearance in Congress two weeks ago. from the United States, and which he paraphrased this Wednesday. "There is still uncertainty," he insisted. "We need more evidence that we are moving towards 2% and we will not reduce rates until we have more certainty," he reiterated.
One of the keys to “reading” their next steps was in updating the Fed's economic outlook and whether this influenced their plans. And in this regard, the Reserve significantly raised the projection of the gross domestic product (GDP) to 2.1%, compared to 1.4% last December. According to this perspective, unemployment will remain at 4% (4.1% previously) and inflation would remain at 2.4%.
For investors, the meeting was basically about how much longer they will have to wait for those cuts. But the Fed has another concern. If you wait too long, can this cause a recession? This possible irrigation has not yet been placed in the center of gravity this week, but it is a thought that extends for the rest of the year.
Powell reiterated the idea that lowering interest rates too soon is a danger, although it is also dangerous to keep them at this high level for too long. It is the danger that he defined with "too soon", in terms of stepping on the brake, or "excess" in relation to maintaining restrictions.
