The Albany Gazette - US Fed holds key rate steady for fourth straight meeting

The US central bank has a dual mandate to keep both inflation and the unemployment rate low, and has been heavily focused at recent meetings on reining in inflation, with an eye on its long-term target of two percent.

The Fed confirmed in a statement that it was holding its benchmark lending rate steady at a 23-year high between 5.25 percent and 5.50 percent.

The Fed said the "risks to achieving its employment and inflation goals are moving into better balance."

But it added that its rate-setting committee is unlikely to start cutting interest rates "until it has gained greater confidence that inflation is moving sustainably" toward two percent.

- 'Stunningly good' data -

Following a post-pandemic surge in inflation, fueled further by the Russian invasion of Ukraine, the Fed rapidly hiked interest rates to slow rising prices -- with surprising success.

The US central bank's favored inflation measure, which strips out volatile food and energy prices, has now fallen below an annual rate of 3.0 percent, while economic growth remained robust at 2.5 percent in 2023 and unemployment stayed close to historic lows.

"The data to date has been stunningly good," KPMG chief economist Diane Swonk wrote in a blog post this week.

Fresh data published Wednesday from ADP showed that private sector hiring has cooled more than expected this month, further underscoring the Fed's progress.

- Cold water -

In its December rate meeting, the Fed raised its economic outlook for the year ahead, and signaled it expects as many as three quarter-percentage-point rate cuts in 2024, sparking optimism in financial markets that the central bank could cut rates as soon as March.

When the Fed lowers interest rates, US consumers get cheaper access to credit, meaning the cost of everything from car loans to mortgages falls, while company valuations see a boost.

In response, FOMC officials came out to pour cold water on such enthusiasm.

"We are fully committed to restoring price stability and doing it of course as gently as we can, but we have a lot of work left to do," San Francisco Fed Chair Mary Daly told Fox Business earlier this month.

And Atlanta Fed President Raphael Bostic told a conference that recent "unexpected progress" in the fight against inflation had led him to move up his forecast for the start of rate cuts from the fourth quarter of this year to the third.

"But the evidence would need to be convincing," added Bostic who, like Daly, is a voting member of the FOMC.

Heading into this meeting, traders and analysts were divided between those who believe the first rate will come in March, and those who expect the Fed to tread more cautiously, and move in May instead.

"We retain our baseline expectation that the FOMC will initiate an every-other-meeting cutting cycle in March," economists at Barclays wrote in a recent investor note, adding that their forecast was dependent on the Fed's favored inflation measure continuing to come in weak.

Goldman Sachs Research also expects a March cut, "mainly because progress on inflation is already sufficient," chief US economist David Mericle wrote in a recent note.

Futures traders have oscillated over a possible March cut in recent weeks, according to AFP analysis of CME Group data.

They were much more confident ahead of the meeting about the chances of a May cut, assigning a near-90 percent probability that the Fed will have a lower rate by May 1 than it does now.

Analysts will be closely watching upcoming remarks from Fed Chair Jerome Powell for further hints of when the bank could begin reducing rates.

(N.Miller--TAG)