Jerome Powell’s Fed announced today that it has confirmed US fed funds rates at a range between 5.25% and 5.5%record in 23 years, leaving the December dot plot unchanged, from which emerges the expectation of three rate cuts during 2024.
Contrary to what was feared by the markets, which had feared in the last few hours the possibility that in the updated dot plot only two cuts to rates during this year, the Federal Reserve confirmed the status quo, a factor that immediately triggered buys on Wall Street.
Result: the S&P 500 flew above the 5,200 point threshold for the first time in its history, while the Dow Jones jumped up to +400 points.
Also purchases on Nasdaq, jumped by more than 1%.
Il bad suspicion therefore did not materialize, in a situation in which there is no shortage of economists who point out that, in the face of persistent inflation, the Fed could even raise rates again.
The markets therefore breathed a sigh of relief, also in the wake of the statements made by Fed President Jerome Powell, in the press conference called after the rate announcement.
Powell reiterated that he is confident in the ability of US inflation to return to the annual rate desired by the Fed, equal to 2%, although at this moment “we do not see this situation in the (macro) data”, stating that “we believe that our monetary policy is probably at the peak of this type of cycle, and that, if the economy evolves largely as expected, it will perhaps be appropriate to begin to backtrack from the tightening phase at some point later this year.”
However, it is true that the FOMC, the monetary policy arm of the Fed, has confirmed the cautious approach adopted to date towards the possibility of cutting rates, at least in the short term.
In the statement with which the FOMC announced the decision on rates, we read that “the Commission does not consider it appropriate to reduce the rate target, until he has greater confidence that inflation is heading sustainably towards 2%.”
The press release states that “inflation has weakened over the last year, but remains high.”
The FOMC again:
“the latest indicators suggest that economic activity continues to expand at a solid pace. New job creation remained strong and the unemployment rate remained low.”
Returning to the dot plot released today, which confirmed itself as the main market mover on Fed Day, the document containing the forecasts of the Fomc representatives on the direction of rates continues to forecast three rate cuts of 75 basis points for 2024as emerged from thefinal act of the Fed of 2023
Jerome Powell preferred it however do not anticipate the Fed’s future rate moves, underlining that “today we have not taken any decisions on the outcome of future meetings, which will depend on the data”.
In any case, “we are strongly committed to bringing inflation down to 2% over time.”
Powell referred in this regard to the “continuing progress that the Fed is making in reducing inflationary pressures”, but also that the “decisions (on rates) will be taken from meeting to meeting” and that, precisely, “we will carefully evaluate the incoming data to determine” monetary policy.
And, the magic phrase: “we will probably cut rates at some point this year”.
As regards the latest data relating to US inflation “we will not react disproportionately to what has emerged in the last two months”, “but neither we will ignore it.”
Last Friday, not very comforting indications arrived with the publication of the PPI index, which in February reported an annual jump of +1.6%, at the fastest pace since September 2023.
On a monthly basis, growth was double what was expected and also double compared to the month of January, equal to +0.6%.
Excluding the most volatile components represented by food prices and energy prices, the PPI core it rose by 0.3%, more than the expected +0.2%.
It had been announced even earlier the CPI consumer price index, another crucial thermometer for monitoring the inflation trend, which advanced at a rate of 3.2%, compared to the previous 3.1% and the 3.1% expected by the consensus.
Even worse the core CPI, which rose year-on-year by 3.8%, slower than January’s +3.9% but above the expected +3.7%.