After roughly two years of being consistently gloomy about the country’s economic outlook, consumers are growing more optimistic. Consumer confidence hit a two-year high in January, while sentiment has reached its highest reading since July 2021. Minutes from the Fed’s December meeting showed that several officials considered it “appropriate” to begin discussing slowing the rundown. A challenge for the bank is to avoid a repeat of what happened in 2019, when the end of an earlier phase of quantitative tightening created turmoil in the bond market that spread throughout the financial system. The Fed carefully watches the shrinkage of its balance sheet and will discuss what to do next with it in depth beyond closed doors at the next meeting of the Federal Open Market Committee in March, Powell said. Those discussions are likely to revolve around when the central bank should slow down the shrinkage after reducing its balance sheet by more than $1.3 trillion since June 2022.
- At subsequent meetings, the committee kept the target rate at the same level and confirmed the rate as of the last meeting, which was on Jan. 31, 2024.
- Participants generally indicated that upside risks to the inflation outlook remained a key factor shaping the outlook for policy.
- The unemployment rate moved up 0.2 percentage point to 3.7 percent in October and remained at that rate in November.
- Developments in Financial Markets and Open Market Operations
The manager pro tem turned first to a discussion of developments in financial markets.
Consumer spending on both goods and services during the holidays gave the economy a significant boost, with retail sales coming ahead of expectations in the last three months of the year. The FOMC holds eight regularly scheduled meetings during the year and other meetings as needed. The minutes of regularly scheduled meetings are released three weeks after the date of the policy decision.
Why are FOMC Meetings important?
Committee membership changes at the first regularly scheduled meeting of the year. Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low. Members observed that Russia’s war against Ukraine was causing tremendous human and economic hardship. They also agreed that the war and related events were contributing to upward pressure on inflation and were weighing on global economic activity. Inflation is easing from its 40-year high of 9.1%, reached in June 2022, but the downward path has been bumpy.
Fed holds interest rates steady, hints March rate cut is unlikely despite easing inflation
Consumer spending and a solid labor market are helping to shape the economy, but there is a risk that inflation will rise above present levels. Recently, Federal Reserve Chair Jerome Powell acknowledged a soft landing as a plausible economic outcome but acknowledges it’s not guaranteed and remains committed to reducing inflation. The ‘higher-for-longer’ https://traderoom.info/ scenario for rates is likely to prevail in the US economy. The Committee may also hold unscheduled meetings as necessary to review economic and financial developments. The FOMC issues a policy statement following each regular meeting that summarizes the Committee’s economic outlook and the policy decision at that meeting.
The Fed implements various policies and strategies designed to stimulate the economy and to stop prices from dropping too low. Being aware of the scheduled dates for FOMC meetings and knowing whether there is a Fed meeting on the day allows you to be prepared for the crazy volatility that might occur in the markets. The FOMC’s decisions on interest rates have a significant effect on the U.S. dollar. These tools allow the Fed to influence the supply of and demand for balances held at Federal Reserve Banks by depositary institutions and which affects the interest rate. Other recent measures of inflation are providing some evidence that inflation is continuing to cool, with December’s personal consumption expenditures — the Fed’s preferred measure of inflation — rising 2.9% on an annual basis, excluding food and energy.
When will the Fed cut interest rates?
But there are signs the increase in the labor supply has peaked, meaning the upward pressure on wages could resume. And while the gauge released Wednesday showed easing pay increases, another measure of hourly pay gains ticked up in December. While the economy remains strong, there is evidence that the labor market is weakening. On Wednesday, the Labor Department said workers’ pay and benefits in the fourth quarter grew at the slowest pace in two and a half years.
Fed Chair Jerome Powell began his post-meeting press conference by reiterating that inflation is “still too high,” later adding that a March rate cut wasn’t likely. The Federal Reserve kicked off the year in neutral, opting to keep interest rates unchanged at a meeting of its policy-setting committee on Wednesday. Over the longer term, however, the prospect that the Federal Reserve is done raising interest rates has been a boon for the stock market and for your 401(k). And there are signs the labor market is wobbling, says Goldman Sachs economist David Mericle. Pandemic-related product and labor shortages sparked the inflation spike and their resolution has allowed price gains to stabilize, economists say.
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In their last meeting, the FOMC’s 12 members decided to dial down the rate of hikes for the second time in a row, to 0.25% after a previous hike of 0.5% which was preceded by four consecutive hikes of 0.75%. The FOMC minutes are a detailed record of the committee’s policy-setting meeting. The gain in the core personal-consumption-expenditures price index, which excludes the more volatile costs of food and energy, slowed to 2.9% year over year in December. Additionally, for the second quarter in a row, core PCE came in at 2% annualized rate during the fourth quarter. Economic activity was robust, unemployment remained under 4%, and inflation trended down.
Despite tentative signs of easing in foreign headline inflation, core inflationary pressures remained elevated in many countries. In response to high inflation, many central banks further tightened monetary policy, albeit at a slower pace in some cases. Staff Economic Outlook
The forecast for U.S. economic activity prepared by the staff for the December FOMC meeting was not as weak as the November projection.
While delinquency rates on credit cards remained low relative to their historical range, those on auto loans surpassed their pre-pandemic peak. Credit continued to be generally available to businesses and households, but high borrowing costs appeared to weigh on financing volumes in many markets. Issuance of investment-grade corporate bonds rebounded somewhat in late October and November from earlier subdued levels, while speculative-grade issuance remained soft. New launches of leveraged loans picked up in November, particularly for higher-rated firms. An FOMC rate decision has a significant effect on other economic variables, including foreign exchange rates, short-term interest rates, the price of services and goods, and even employment. The Fed’s purpose is to try to achieve stable prices while maximizing employment.
In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. Staff Review of the Financial Situation
Over the intermeeting period, Treasury yields and measures of inflation compensation declined, on net, and the implied path of the federal funds rate in 2023 ended modestly lower.
Both the labor force participation rate and the employment-to-population ratio declined a little over the past two months. The private-sector job openings rate, as measured by the Job Openings and Labor Turnover Survey, moved back down in October but remained high. Staff Review of the Economic Situation
The information available at the time of the December 13–14 meeting suggested that U.S. real gross domestic product (GDP) was increasing at a modest pace in the fourth quarter of 2022 after expanding strongly in the third quarter. Labor market conditions eased somewhat over October and November but remained quite tight. Consumer price inflation—as measured by the 12-month percent change in the price index for personal consumption expenditures (PCE)—stepped down in October but continued to be elevated. Meanwhile, though, the economy grew at a sturdy 3.3% annual rate in the fourth quarter and a healthy 2.5% for all of 2023.
No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023. Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time. In view of the persistent and unacceptably high level of inflation, several participants commented that historical experience cautioned against prematurely loosening monetary policy. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/4 to 4-1/2 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.
“That has to be some part of why people are unhappy, and they’re right to be unhappy,” he said, adding that taming inflation would likely continue to improve overall sentiment. That bodes well for consumer spending throughout the rest of the year, Powell said Wednesday. Notation Vote
By notation vote completed on November 22, 2022, the Committee unanimously approved the minutes of the Committee meeting held on November 1–2, 2022. The index hovered around plus-40 just before the 2020 pandemic shutdown, then plummeted to a low of -58 in June 2022, when inflation reached a historic high. Consumer confidence in the U.S. economy, while low, reached its highest point in two years on the latest Gallup Economic Confidence Index, released Tuesday. Meanwhile, there’s a risk that the supply chain snarls that triggered inflation in the early days of the pandemic could flare again because of military conflict in the Red Sea, Barclays says.
Participants observed that the growth of economic activity had slowed significantly in 2022 from the previous year’s robust pace, partly in response to the Committee’s policy actions. The effects of those actions were especially notable in interest-sensitive sectors, particularly housing. Participants remarked that, although real GDP appeared to have rebounded moderately in the second half of 2022 after declining somewhat in the first half, economic activity appeared likely to expand in 2023 at a pace well below its trend growth rate. With inflation remaining unacceptably high, participants expected that a sustained etoro forex broker period of below-trend real GDP growth would be needed to bring aggregate supply and aggregate demand into better balance and thereby reduce inflationary pressures. On a four-quarter change basis, total PCE price inflation was expected to be 5.5 percent in 2022, while core inflation was expected to be 4.7 percent, both lower than in the November projection. With the effects of supply–demand imbalances in goods markets expected to unwind further and labor and product markets projected to become less tight, the staff continued to forecast that inflation would decline markedly over the next two years.
