After the FED left interest rates constant as expected, Chairman Jerome Powell’s press conference started at 22:30 GMT.
Here are the most important highlights from Powell’s critical speech:
- The economy has made good progress and inflation has decreased.
- The path forward is unclear.
- The policy rate has entered the restrictive zone.
- Economic activity is expanding at a strong pace.
- High interest rates negatively affected the fixed investments of businesses.
- Activities in the housing sector stagnated.
- The labor market remains tight.
- Inflation has fallen significantly but remains above the 2% target.
- Labor demand still exceeds supply.
- Falling inflation welcome, but ongoing evidence needed
- Long-term inflation expectations appear well-anchored.
- Our policy rate is probably at its peak.
- It would probably be appropriate to start reducing interest rates this year.
- If the economy develops as expected, we will withdraw the policy rate this year.
The FED had increased interest rates 11 times since March 2022 in order to combat the fastest inflation in recent decades.
Since then, price increases have decreased significantly and are closer to the Fed’s 2% target. This means that the FED will cut interest rates in 2024, but the timing of this first interest rate cut remains unclear.
Much of the Federal Reserve’s post-meeting statement, released at 10 p.m., was virtually identical to statements made at previous meetings. However, small changes with big meanings were made.
Statements made in the past few meetings have included a line saying “in determining the scope of any additional policy tightening that may be appropriate to return inflation to 2 percent over time,” here are the conditions and/or situations to be considered.
This statement was completely removed at the January meeting, implying that FED officials no longer believed it was worth keeping the door open for further interest rate hikes.
However, the statement continued to state that inflation “continues to remain high.” Sarah House, a senior economist at Wells Fargo, told CNN that if the FED removed this statement and replaced it with a more neutral statement, it could mean that it was preparing for an interest rate cut.
*This is not investment advice.
