Federal Reserve Chair Jerome Powell used his press convention Wednesday to throw chilly water on market expectations that the Fed would start to chop rates of interest in March.
“Based on the meeting today, I would tell you that I don’t think it is likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that, but that is to be seen,” Powell stated.
“So, I wouldn’t call it…the most likely case, or what we would call the base
case,” he added.
“A March cut? Fuhggeddaboutdit!” wrote Derek Holt, head of capital market economist at Scotiabank, in a observe to shoppers.
Stocks
SPX
DJIA
closed decrease and the 10-year Treasury observe yield
BX:TMUBMUSD10Y
fell beneath 4% after Powell’s press convention.
Here are another key takeaways from the Fed chairman’s press convention:
The Fed desires to see ‘the whites of 2% inflation’s eyes’
Bill Adams, chief economist for Comerica Bank, stated the Fed was badly burned in late 2021 and 2022 after they thought excessive inflation could be transitory. They wish to keep away from making the identical mistake right here, he stated.
“The Fed will wait to pull the trigger on rate cuts until they see the whites of 2% inflation’s eyes,” Adams stated.
The Fed is prone to begin reducing in June, Adams stated.
Powell wouldn’t say what number of months it would take, so the Fed can have extra confidence to ease. “I’m not going to put a number on it,” he stated.
Once the Fed begins reducing, it is likely to be arduous to cease
Greg Daco, chief economist at EY, stated Powell appeared to counsel that price cuts will come each assembly as soon as the easing cycle begins.
He famous that Powell stated the primary reduce “is a highly consequential decision to start the process of dialing back on restrictions. We want to get that right.”
Quantitative tightening might last more than many anticipate
Holt of Scotiabank observed that Powell stated the Fed would start to mull adjustments to its ongoing program to shrink its steadiness sheet, generally known as quantitative tightening, in March. He stated that the Fed was “looking at a variety of things over the next year or so.”
Holt stated that is likely to be a reference to “the kind of timeline they have in mind for ending QT. That comment might imply rejection of a sudden ending of QT and a more compressed timeline.”
Many economists assume the QT will finish someday later this yr.
Fed desires extra information on items costs and rents earlier than it’s assured about inflation
Omair Sharif, president of Inflation Insights, stated Powell’s feedback counsel that Fed officers are fearful that core items costs may choose up after months of declines.
“Core goods have been the main driver of the deceleration” in core PCE and core CPI. “It seems like the Fed isn’t convinced that this will last,” Sharif stated.
“Additionally, as I’ve noted in recent months, I think the Fed would like to see a couple months of softer rent/owners equivalent rent data to feel more confident that shelter will start to more forcefully pull down core inflation in coming months,” he stated.
Source web site: www.marketwatch.com
