Fed freezes interest rates 5.25-5.50% for 4 consecutive times
Powell: Interest rate cut likely to be difficult in March
“We need greater confidence in falling prices,” he said several times.
Nasdaq falls more than 2% during the day due to cold water from early interest rate cut
“A rate cut in March is unlikely to be possible.”
Jerome Powell, Chairman of the U.S. Federal Reserve, poured cold water on market expectations of an interest rate cut in March.
At the press conference held after the US Federal Open Market Committee (FOMC) on January 31 (local time), the word Chairman Powell mentioned most often was ‘confidence’. Inflation is falling sufficiently, but greater assurance and confidence is needed that it is sustainably settling within the policy target of 2%.
Immediately after Chairman Powell’s remarks dashing expectations of an interest rate cut in March, all three major US stock markets in the New York Stock Exchange are showing a decline of around 1%.
That the Federal Reserve would not be in a hurry to cut interest rates was also implied in a statement following the Federal Open Market Committee (FOMC) regular meeting today. The Federal Reserve removed the phrase ‘additional policy firming’ from its statement announcing that it would freeze the base interest rate at the existing 5.25-5.50%. It was made clear that raises were no longer a matter of discussion.
However, regarding the timing of the interest rate cut, he said, “We do not expect that it will be appropriate to reduce the target range (base rate) until there is greater confidence that inflation is moving sustainably toward 2%,” and will wait until the 2% inflation target becomes clear. It was revealed that it was.
This means that although the core personal consumption expenditures (PCE) in December, a price index valued by the Federal Reserve, reached 2.9% and entered the 2% range, it is still difficult to be sure of price stability. When asked at a press conference whether it was difficult to feel confident in the current slowdown in inflation, Chairman Powell said, “It doesn’t mean that six months’ worth of price data isn’t low enough, but that doesn’t give us enough confidence that we’ve returned to 2% prices.” “It’s a question of whether to give it or not,” he said, emphasizing that “we need more indicators, not better indicators.”
He also said, “We have not declared victory yet,” and continued his stance that although prices are falling, they are still high and that he will be cautious about lowering interest rates.
The tone of Powell’s remarks that day was focused on ‘cautiousness.’ A characteristic of this meeting was that the word confidence was mentioned countless times, saying, “Greater confidence is needed in price stability,” and “(current indicators) are insufficient to have confidence.”
At this FOMC meeting, there appeared to be mixed opinions among members regarding the timing of the reduction. Chairman Powell said, “There was a big difference in opinion (among the committee members). “This was a healthy difference of opinion,” he said, adding, “Based on the discussion among the committee members, it does not seem likely that a March cut will be possible.”
Previously, at a meeting held in December last year, the Federal Reserve presented the median forecast for the base rate at the end of this year as 4.6% (4.5-4.75%), indicating that it would cut it three times this year. At the time, Chairman Powell said that inflation was falling sufficiently and “we discussed an interest rate cut,” so the market had high hopes for an interest rate cut in March.
However, expectations for a rate cut in March were somewhat dampened earlier this month when Federal Reserve Board Director Christopher Waller said that U.S. economic growth is still strong and that “we can take our time to do it right,” and that the Fed could carefully consider the timing of the rate cut. come. Although an economic slowdown was expected due to the accumulation of intensive austerity measures, the US gross domestic product (GDP) growth rate in the fourth quarter of last year (October to December) was 3.3%, significantly exceeding the market forecast of 2%.
Former New York Fed President William Dudley said in a Bloomberg TV interview immediately after Powell’s press conference that Chairman Powell’s overly cautious stance is “because the economy is doing too well.” This means that there is no reason to hastily attempt a rate cut, as the U.S. economy is growing based on strong consumption despite high-intensity austerity measures.
As Big Tech’s performance fell short of expectations and the market’s expectations of an early interest rate cut were dampened, all three major New York stock market indices are showing a downward trend, with the Nasdaq index plummeting by more than 2% during the day. According to FedWatch of the Chicago Mercantile Exchange, interest rate futures investors also drastically lowered the possibility of a March interest rate cut to the 30% range immediately after the FOMC press conference and appeared to be betting on a May rate cut.
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.