Fed confirms rate cut prospect in 2024 dependent on data

The Fed promises, but does not guarantee: interest rate cuts will take place in 2024 even if the timing or extent of the related cuts is not known. They confirm this Minutes of the last monetary policy meeting of Federal Open Market Committeethe monetary policy committee of Federal Reservepublished last night, which also reiterate the anchoring of the Board’s decisions to the outgoing macroeconomic data.

Rates near peak

“In discussing the prospects for monetary policy – ​​we read in the FOMC minutes – the participants considered that the official rate it was probably at or near its peak for this tightening cycle, although they noted that the actual path will depend on how the economy evolves.”

Inflation under control and a thriving job market

FOMC members recognized the progress made in the fight against inflation and improvements in global supply chains, which had contributed substantially to the price surge that occurred through mid-2022. Bankers also cited the progress in the labor market and confirmed that labor market conditions continued to be tight, with moderate but still strong job gains and a low unemployment rate.

“Appropriate” but not guaranteed cuts

Citing improvements in the inflation outlook, FOMC members weighed in a cut is “appropriate”. of Fed funds “by the end of 2024”. But the Minutes also noted an “unusually high degree of uncertainty” about the path to this result and the lack of unanimity of views: some members reiterated that it may be necessary to keep rates higher if inflation does not cooperate, while others highlighted the potential for further increases as economic conditions evolve.
“More generally, participants highlighted the importance of maintaining a careful approach and dependent on macroeconomic data in making monetary policy decisions and reaffirmed that it would be appropriate for policy to remain on a restrictive stance for some time until inflation has clearly moved sustainably towards target.”

Wall Street’s nervous reaction

The indications coming from the Fed certainly have the most optimistic expectations cooled of the markets, which expected more decisive and earlier cuts this year. Some analysts had even hypothesized a 1.5 point cut rates in a range of 3.75-4%, against the three-quarters of a point revealed by the FOMC “dot plots”. A first cut was then hypothesized as early as the month of March 2024which is now not guaranteed.
For this reason Wall Street closed trading in bad mood and Asia also reacted with a bit of pessimism to the indications coming from the Fed, while the bond yields they started to rise again.