January 31st FOMC Follow-Up

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  • The FOMC announced today that it will again leave the Federal Funds target rate unchanged at a range of 5.25 – 5.50%. This has been the target range since the July 2023 meeting. This outcome was widely anticipated by markets.
  • Today’s decision was a unanimous vote by the Committee. There has not been a dissenting vote since June 2022.
  • The FOMC statement was updated to remove a tightening bias but keeps the timing of a potential rate cut ambiguous. Today’s statement says that the FOMC “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.”
  • The statement said that the risks to achieving inflation and employment goals are coming into “better balance”. Fed Chair Powell indicated during his remarks that “the economy has surprised forecasters in many ways” and that continuing progress is not assured.
  • During questioning Powell pushed back against expectations of imminent rate cuts by stating, “I don’t think it’s likely that the committee will reach a level of confidence” to cut interest rates by the next meeting in March.
  • Futures markets suggest roughly 150 bps of rate cuts by the end of the year, double the FOMC’s projections from December. The FOMC “dot plot” will next be revised in March.
  • The FOMC communicated there will be no changes to the current plan for quantitative tightening. Powell said at the press conference that in-depth discussions of the Fed’s securities holdings will begin at the next meeting. Assets on the Fed’s Balance sheet as of January 24th totaled $7.7T, down over 14% from the peak of just under $9T in March 2022.
  • To begin the day’s trading session, equity markets were lower and Treasury yields fell on wage and labor data. Stocks declined further following Powell’s press conference while Treasuries remained approximately flat at the morning’s lower levels.

Economic Conditions

  • Total PCE rose 2.6% for the year ending in December while Core PCE, which excludes food and energy prices, rose 2.9%. Data has been trending towards the Fed’s 2% target, including a six-month annualized Core PCE of 1.9% for December.
  • Recent GDP data shows that the US economy continues to expand at an above trend pace. Growth in the fourth quarter was 3.3%and for 2023 as a whole GDP expanded by 3.1%, bolstered by strong consumer demand and improving supply conditions.

The FOMC is next scheduled to meet March 19 – 20, 2024.


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