Red scissors on blue background, signifying the idea of Federal Reserve Bank interest rate cuts.

Federal Reserve: Time to cut rates? Not so fast

Last week, the Federal Reserve Board of Governors convened for its first meeting of 2024. The topic of conversation was, of course, inflation and how its lingering effects in the economy would influence central bank policy. In a statement issued by Chairman Jerome Powell, he made note of the following data trends:

  • Economic Outlook: GDP growth was strong at 3.3 percent for Q4 of the previous year and 3.1 percent overall for 2023, supported by consumer demand and improving supply conditions. However, high mortgage rates significantly reduced housing sector activity.
  • Labor Market Conditions: The labor market remains tight but is rebalancing. Payroll job gains averaged 165,000 jobs per month over the past three months, with the unemployment rate at 3.7 percent. Labor force participation has increased, especially among those aged 25-to-54.
  • Inflation Trends: Total PCE prices rose 2.6 percent for the 12 months ending in December, with core PCE prices up 2.9 percent. Lower inflation readings in the latter half of the year are seen positively, but continued evidence is needed to build confidence in a sustainable move towards the two percent inflation goal.

With the rate of inflation down significantly since its peak in the summer of 2022, and the labor market maintaining strength, many were hopeful to hear lower target rates announced. But lower rates were not announced—or at least not yet.

“The lower inflation readings over the second half of last year are welcome, but we will need to see continuing evidence to build confidence that inflation is moving down sustainably toward our goal,” said Chairman Powell. “We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year.”

The Board of Governors will meet again in March on the 19th and 20th. We’ll see if they change their mind.

 

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