With the Federal Reserve widely expected to hold interest rates steady Wednesday afternoon, all eyes are on Fed Chair Jerome Powell’s press conference and what clues he provides about when the central bank could cut rates again.
Numerous signs point to not anytime soon.
After making three rate cuts at the end of last year to address concerns over the job market and absorbing more economic data since their last meeting, several Fed officials have signaled a near-term pause, saying “policy is in a good place.”
Matt Luzzetti, chief economist for Deutsche Bank, said he expects officials will “send a strong signal that with the policy rate now within the range of Fed officials’ estimates of neutral, the committee is well positioned to respond to risks to either side of their dual mandate should incoming data warrant an adjustment.”
Krishna Guha, head of global policy and central banking strategy at Evercore ISI, said he thinks the central bank is setting up for an “extended pause.”
“Powell will underscore policy is ‘well-positioned’ with no urgency to cut again soon,” he said. “Powell will say the FOMC would consider cutting in the months ahead if the labor market weakens materially further. But unless that happens — we think it will not — the Fed will be on hold for the balance of his term as chair that ends in May.”
The December jobs report indicated payroll growth remains soft, though the unemployment rate dropped to 4.4% after ticking up in November. At the same time, recent reports show inflation is still stuck above the Fed’s 2% inflation goal. The Consumer Price Index for December on a “core” basis, which excludes volatile food and energy prices, stands at 2.6%, holding the same level seen from September through November.
A less clean reading on the Fed’s preferred inflation gauge — the “core” Personal Consumption Expenditures index — showed more elevated inflation at 2.8% for November. That data was delayed because of lingering impacts of last fall’s government shutdown.
While there’s little in doubt about Wednesday’s interest rate decision, divided views within the central bank mean there could be dissents again.
Fed officials penciled in just one cut for this year, as the rotation of new regional Fed bank presidents into voting member positions brought on members who favor holding rates steady to rein in inflation.
Cleveland Fed president Beth Hammack, Dallas Fed president Lorie Logan, and Minneapolis Fed president Neel Kashkari, all new voting members, are expected to hold the line. At the same time, Powell, New York Fed president John Williams, Fed governor Michael Barr, and Fed Vice Chair Philip Jefferson have all said that “policy is in a good place,” indicating they’re content to assess before taking further action.
