Federal Reserve:Meetings/2024 January 31
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Results
- The FOMC kept the fed’s target range unchanged at 5.25%-5.50% as was expected by the market.[1]
- The statement signalled that they are not ready to cut interest rates yet.
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the statement noted.
- The committee said that the economic growth has been solid and that progress has been made in the fight against inflation though economic outlook remains uncertain.
"Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated,"the statement said.
The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks."
- The officials dropped their previous statement that suggested they were open to more rate hikes and adopted a fair assessment of the future.
“The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance,” the statement pointed out. “In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
Conference Notes
- They need continuation of the good data of the past 6 months. Confidence is good now, but they need to increase it.
- They are not looking for 1 month of inflation at 2%, they would need it to settle at 2% indefinitely. Also not looking to be below it.
- As of this meeting, don’t think it’s likely that the committee will reach a high level of confidence by the time of the March meeting to identify March as the time to cut, but that’s to be seen
- About the pace of QT, they are planning to begin in-depth discussions of Balance Sheet at the next meeting in March
- Softening data has not been needed until now. Don’t look at as strong GDP as a big problem.
- The greater risk currently is that inflation stabilized at a level above 3%, the risk of inflation increasing again would be a surprise.
- They are in risk management mode now, not moving too soon or too late. The neutral rate is uncertain currently.
- The labor market is rebalancing, due to better participation rate and immigration increasing, but still not totally back to normal
- If an unexpected weakening of the labor markets happens, that would mean cuts sooner. But they are not looking for that.
- He would not say the US has achieved a soft landing, their is still ways to go to declare victory
- Powell dont see a big boost in productivity after coming out totally of the pandemic effects, and thinks will come back to previous levels. He does not think AI will have that much of an impact short term.
- A lot of the improvement until now has been supply chains normalizing, at some point this will stop having a significant effect
Commentary
Former Fed Vice Chairman Roger Ferguson[2]
- Powell introduced the risk of inflation stopping getting better, settling at a level above target, while the economy is still strong. He thinks is unlikely (0:45)
- FED thinks they need/can wait because the economy is still not giving signs of being on edge. (2:34)
- NYCB’s situation is a reminder that there is still some weakness in some banks, and the FED removing the safe and resilient part from their statement could be a recognition of things they might be hearing from some banks. (4:00)
William Dudley, former president of Federal Reserve Bank of New York[3]
- Because the economy is still strong and the easing of financial conditions the FED is less inclined to cut rates than would be otherwise. (1:51:00)
- QT could probably start on 1H2024. QT is not so much about easing policy, but about getting to the optimal level of bank reserves (1:52:00, 1:55:00)
- March is not completely off the table, Powell just said currently seems unlikely. But economic data could dictate otherwise. (1:53:15)
- He thinks FED is not that worried about issues in the banking system currently, since there is more transparency to what is happening. (1:56:00)
Former Kansas City Fed President Esther George[4]
- Conference was pushed back against expectation, and the fact the FED will only move when confidence is higher (0:30)
- While 6-month data looks good, the committed has a long horizon and focus on the 12-month rate too, but thinks 1H2024 will be a good opportunity to start cutting (1:30)
- Risks need to be more balanced now, since we are also starting to hear some credit stress in some parts of the economy (CRE). Which is the expected effects of monetary policy. (4:20)
