It is not unreasonable to compare the emotions of Federal Reserve Chairman Jerome Powell and his colleagues to those of parents accompanying their children on a protracted road trip.
“Are we there yet?” is a question that enthusiastic investors continue to pose to policymakers in anticipation of interest rate reductions. This is the response that has been given repeatedly thus far: “Soon, but not quite yet.”
On January 30 and 31, the Federal Open Market Committee is widely anticipated to maintain interest rates unchanged for the fourth consecutive meeting in Washington. However, the true emphasis will be on forthcoming developments, including the FOMC’s March meeting as well as afterwards.
Recent indications from policymakers indicate they are prepared to initiate deliberations on the overarching parameters for interest rate reductions, following their brief mention of the matter during their December meeting. Additionally, a number of them have expressed a readiness to consider reducing interest rates during the initial six months of 2024, should inflation decline at an accelerated pace than initially anticipated.
However, there is no indication that officials intend to use their upcoming meeting to set the stage for a rate reduction in March; that does not rule out the possibility that one could occur in response to economic developments between now and then.
Mary Daly, president of the Federal Reserve Bank of San Francisco, stated on Friday that it is “premature” to anticipate interest-rate decreases, adding that she requires additional evidence that inflation is returning to 2% on a consistent basis before easing policy.
“The Fed can be patient,” said Ellen Zentner, chief US economist at Morgan Stanley. The first rate cut is anticipated in June.
As has been customary in the past, Powell and his colleagues will not be reducing interest rates to combat an economic contraction. As such, they can proceed at their own pace. Conversely, policy adjustments will be made to account for an unexpectedly precipitous decline in inflation from its peak of over a decade and a half ago.
