Fed confirms rates at 5.25-5.50% and offers no suggestions on cuts

Hopes of a rate cut fade of interest in March. As expected, the Federal Reserve confirmed the reference levels of interest rates on the dollar, while at the same time sending signals that it is not inclined to adjust them downwards in the short term. The reference fork sui fed funds thus remains at 5.25%-5.50%. Reducing the cost of money is not appropriate, the central bank notes, until there is greater confidence in a decline in inflation towards the 2% target. In the press conference at the end of the directorate, the FOMC, the president of the Fed Jerome Powell he defined “unlikely” the possibility that a cut will be reached at the next meeting, which will take place on March 19 and 20. In the statement on the decisions, the FOMC specified that “it does not expect that it will be appropriate to reduce the reference rates until it has greater confidence that inflation is moving sustainably towards 2%”.

The Fed’s next steps

There gallop of inflation – explains the Fed – it slowed down, but prices remain high in a context of “economic activity growing at a sustained rate” and a “solid labor market”. While painting a positive picture, the central bank still warns that “the economic outlook is uncertain” and it is necessary to stay “very attentive” to the risks of inflation. All US central bankers – as Powell underlined – are convinced that at some point rates will have to be reduced. So much so that it could even happen that while the Fed cuts rates it continues to tighten up the “quantitative” part of the monetary line, that is reducing the size of its budget through disposals of securities, mainly public. If anything, it could consider slowing down the pace of the reduction. “We will begin in-depth discussions on this in March,” Powell said. Rates and Qt (quantitative tightening) “we see them as independent instruments – explained the president of the Fed -. If you normalize the line you could reduce rates but continue to reduce the size of the balance sheet, it is possible”

Board divided on rate cut timing

“We will continue to make our decisions from time to time. We think that i rates are at their peak for this cycle and that it will be appropriate to reduce tightening at some point this year, but the economy has surprised expectations in many ways and progress towards our 2% target is not assured, the prospects are not certain – said Powell in the press conference at the end of the FOMC –. We are prepared to keep rates at current levels for longer if it were appropriate.” In the USA “inflation has fallen without a significant increase in unemployment and this – said the Fed president – ​​is excellent news, but it remains too high. I want to assure Americans that we are fully committed to returning inflation to our target level of 2%. The drop in the cost of living “is welcome but we need to see continued evidence that gives confidence that inflation will move towards our target levels. We want to see more positive data that show that inflation is falling.” The Federal Reserve board is divided on the timing of when it will be appropriate to cut interest rates, although at the meeting of the last two days no one has yet proposed a reduction. “We have a healthy internal debate with different points of view, you’ll see it in the board minutes,” Powell reported.

IMF forecasts

The Fedas well as the ECB and the Bank of England, is located At the fork of cutting rates aware that reducing them too soon could inflame inflation again and cutting them too late could instead suffocate the recovery. According to the International Monetary Fund, the three largest central banks they will maintain the rates at current levels”until the second half of the year before gradually reducing them.”

The December dot pilot

In the minutes of the December 12 and 13 meeting the Federal Reserve noted inflation “still above target” with “decreased upside risks”. On that occasion the Fed announced a continuation of its restrictive monetary policy for some time taxi – we read in the minutes – they are at or near their peak. As for forecasts on the trend of interest rates, the Fed had underlined a high level of uncertainty. In the dot plotwhich accompanied the statement of the Fed’s decision in December to keep the cost of money unchanged, Possible rate cuts in 2024 are indicated.