Live updates | Federal Reserve signals that interest rate cuts aren't imminent (2024)

By PAUL WISEMAN

Powell pretty much stamped out speculation that the Fed would cut rates in March.

Before the Fed wrapped up its meeting Wednesday, around 60% of Wall Street investors were anticipating a cut at the next meeting March 19-20, according to the CME FedWatch Tool.

After his press conference, the share was down to around 37%.

If you’re just getting up to speed: Chair Jerome Powell said it’s unlikely that the Federal Reserve will cut rates at its next meeting in March, dashing the hopes of many investors on Wall Street who had recently put 50-50 odds on such a cut. “That’s probably not the most likely case,” he said.

But he also suggested it was mostly a matter of time before it would be appropriate to cut. The inflation data is headed in the direction that the Fed needs to see for it to cut eventually, he said.

By PAUL WISEMAN

The Fed Chair said he and his colleagues “have growing confidence’’ that inflation is heading toward their 2% target. But he wanted to see still more evidence before declaring victory. “It is a highly consequential decision to start the process of dialing back’’ on high interest rates. “We want to get that right.’’

In a comment that is likely to disappoint Wall Street, Powell pointedly suggested that a rate cut isn’t coming at the Fed’s next meeting in March. “I don’t think it is likely,’’ he said.

The S&P 500 index was down about 1.5% as Powell spoke.

By PAUL WISEMAN

By PAUL WISEMAN

In the past, Federal Reserve Chair Jerome Powell predicted that beating inflation would cause the economy “some pain,’’ suggesting that unemployment would need to rise.

But today, Powell is sounding optimistic that reduced inflation can co-exist with a healthy job market as it has in recent months: “We are not looking for a weaker labor market but for inflation to continue to come down as it has been the last six months.’’

Reacting to the Federal Reserve’s decision Wednesday, Rajeev Sharma, managing director of fixed income at Key Bank, said the Fed is likely “to wait a bit longer to cut rates than the market is currently anticipating.’’

Before Wednesday’s meeting, most investors were forecasting a rate cut at the central bank’s next meeting in March. But Sharma now predicts “the first rate cut would not come before May.’’

By Associated Press

“Recent indicators suggest that economic activity has been expanding at a solid pace,” begins today’s statement, which investors are likely to read like tea leaves.

“Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low,” it continues, before adding the line likely to dominate news coverage: “Inflation has eased over the past year but remains elevated.”

Read the full statement.

For now, the Fed left its rate unchanged, at about 5.4%, a two-decade high.

The central bank cautioned that it “does not expect it will be appropriate” to cut rates “until it has gained greater confidence that inflation is moving sustainably” to its 2% target.

We may learn more as Fed Chair Jerome Powell addresses the media at 2:30 p.m. Eastern.

As expected, the Federal Reserve left its benchmark interest rate unchanged Wednesday at the end of a two-day meeting. The Fed raised rates 11 times from March 2022 to July 2023 and then stopped to see how the economy was reacting.

The Fed also said Wednesday that it needed to see more evidence that inflation is truly in check before it cuts interest rates. That appears to rule out a rate reduction at its next meeting in March.

Inflation has come down steadily since peaking in mid-2022 but is still above the Fed’s 2% target.

By PAUL WISEMAN

The most popular measure of inflation is the Labor Department’s consumer price index.

But the Federal Reserve prefers to look at another measure of price increases: the Commerce Department’s personal consumption expenditures (PCE) price index. And it’s been delivering good news on inflation.

Last week, the PCE index showed that prices rose just 0.2% from November to December and 2.6% from a year earlier, which means the year-over-year rate is closing in on the Fed’s 2% target.

Excluding volatile food and energy costs, so-called “core” prices rose just 0.2% from month to month and 2.9% from a year earlier — the smallest increase since March 2021.

The Fed prefers the PCE index over the Labor Department’s CPI in part because it accounts for changes in how people shop when inflation jumps — when, for example, consumers shift away from pricey national brands in favor of cheaper store brands.

WASHINGTON (AP) — President Joe Biden goes into next year’s election with a vexing challenge: Just as the U.S. economy is getting stronger, people are still feeling horrible about it.

Pollsters and economists say there has never been as wide a gap between the underlying health of the economy and public perception. The divergence could be a decisive factor in whether the Democrat secures a second term next year. Republicans are seizing on the dissatisfaction to skewer Biden, while the White House is finding less success as it tries to highlight economic progress.

“Things are getting better and people think things are going to get worse — and that’s the most dangerous piece of this,” said Democratic pollster Celinda Lake, who has worked with Biden. Lake said voters no longer want to just see inflation rates fall — rather, they want an outright decline in prices, something that last happened on a large scale during the Great Depression.

One group that will likely benefit from Federal Reserve interest rate cuts: Home buyers.

In fact, they already have. The Fed stopped raising rates last July and at its last meeting in December it signaled that it would cut its benchmark rate three times this year, though it did not give any hints about timing.

Mortgage rates have already fallen in anticipation of the cuts: From nearly 8% last fall to about 6.7% last week. Those declines have lowered home buyers’ monthly payments: The national median monthly payment listed on mortgage applications in December fell 3.8% from the previous month to $2,055, the Mortgage Bankers Association said last week. Still, it was up 7.1% from December 2022.

Mortgage rates follow the yield on the 10-year Treasury note, which is influenced by the Fed’s rate moves but also by market forces. So the Fed’s cuts, whenever they come, won’t automatically lower mortgage rates, but they should over time, particularly if the Fed implements as many as 6 quarter-point cuts this year, as some Wall Street investors expect.

By PAUL WISEMAN

The Fed will be watching closely when the government releases January jobs numbers Friday.

The Labor Department is expected to report that American employers added nearly 177,000 jobs last month, according to survey of forecasters by the data firm FactSet, after averaging 225,000 a month throughout 2023.

That would be consistent with what the Fed’s inflation fighters would like to see: slowing but still healthy growth in U.S. hiring. An overheated job market pressures companies into raising wages to attract and keep workers — and into passing the higher costs onto customers through price increases.

But the Fed is hoping to slow things down without causing too much pain. So far, so good. The Fed raised its benchmark rate 11 times from March 2022 to July 2023. And inflation has come down steadily — without tipping the economy into recession.

The job market has been slowing in perhaps the best way possible: Employers have been posting fewer job openings — but not laying workers off. The January unemployment rate is expected to come in at 3.8%, a tick up from December’s 3.7% but still the 24th straight month below 4%, longest such streak since the 1960s.

By Associated Press

Federal Reserve officials got some welcome data this morning from a report that showed wage growth has slowed. That trend isn’t necessarily great for workers, but it should help inflation continue to fall back to the Fed’s target of 2%. According to the Fed’s preferred measure, inflation was 2.6% in December.

On Wednesday, the government reported that pay and benefits rose 0.9% in the final three months of last year, a solid gain but the smallest in two and half years. Slower pay makes it less likely companies will have to raise their prices to cover higher labor costs.

And it wasn’t all bad news for employees: After adjusting for inflation, wages and benefits actually grew faster in last year’s fourth quarter than in the July-September period. With inflation slowing, Americans are getting more buying power from their wages.

By PAUL WISEMAN

Despite signs that Federal Reserve officials are in no hurry to reduce interest rates — and that the U.S. economy doesn’t need the help — Wall Street is still betting on a rate cut at the Fed’s next meeting March 19-20. No cut is expected at the Fed meeting that wraps up today.

According to the CME FedWatch tool, nearly 62% of investors still predict a March rate cut (though the share has been dropping). The expectation persists even after Fed Governor Christopher Waller suggested this month that the Fed “would take our time to make sure we do this right.’’

And the economy continues to show signs of strength. Economic growth came in at a surprisingly robust annual pace of 3.3% from October through December. December retail sales were also unexpectedly strong.

Hopes for an early rate cut have propelled a rally in stocks. The S&P 500 stock index has surged 19% since late October, hitting records along the way. And some economists — including Pierre-Olivier Gourinchas of the International Monetary Fund — worry that investors might be disappointed, sell stocks and rock global financial markets if the rate cuts don’t come as soon as they hope.