Rates hold steady as the Federal Reserve “thinks about” lowering interest rates

At its first policy meeting of the year, the Federal Reserve held interest rates stable, giving the impression that it was considering whether to decrease them, but not that soon. The Federal Reserve maintained its benchmark federal funds rate at 5.5% to 5.25%, the highest level in over 20 years, while it waits for more proof that the significant decline in inflation that occurred at the previous year’s close will continue.

Investors in interest-rate futures markets have been placing bets on the central bank cutting rates at its upcoming meeting on March 19–20, with odds of about 50% during the majority of January. The Federal Reserve Chair, Jerome Powell, did, however, volunteer on Wednesday that they didn’t believe a March cut was likely. “I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting” to justify a rate cut, “but that’s to be seen,” Powell said.  He continued, “It’s a highly consequential decision to start the process” of lowering interest rates, “and we want to get that right.” As an aside, Federal Reserve Chair Jerome Powell was on the shortlist of nominees for TIME’s Person of the Year in 2023.

Wednesday’s closing stock indices were down

Wednesday’s closing stock indices were down; the S&P 500 was down 1.6%, or 79.32 points. The index saw its most significant decrease since September, even though it finished at an all-time high on Monday. The 10-year Treasury note’s yields dropped 0.091 percentage points to settle at 3.965% following the announcement of a loss and a dividend cut by New York Community Bancorp, which caused further concerns about the state of local lenders.

In December, most officials predicted that if inflation kept falling to its objective of 2% and economic growth remained moderate but consistent, they might be able to lower rates three times this year. These forecasts are only released at every other conference. Here is the statement:

The Mortgage Bankers Association said, “The fed-funds rate affects the cost of borrowing for other loans in the economy, including business loans, credit cards, and mortgages. The 30-year fixed-rate mortgage hit a high of 7.9% in October last year — but it is currently only 6.78%.”

Federal Reserve Chair Powell also indicated that the Fed might take longer to drop rates or prolong the procedure if inflation becomes more enduring. If the job market deteriorated, or there was “very, very persuasive lower inflation,” it may decrease rates sooner rather than later.

Many analysts had predicted a year ago that the Fed would need to hike rates to generate enough slack, in the form of idle factories and jobless workers, to limit inflation dramatically. Wage growth slowed at the end of 2023, which the Fed considers a “comprehensive measure of pay growth.”

Inflation in December decreased to 2.9% from a year ago

Using the Fed’s preferred measure, inflation in December decreased to 2.9% from a year ago, excluding volatile food and energy prices. During the second half of the year, the six-month annualized inflation rate decreased from 4% in the first half to less than 1.9%.

Some economists have said the strength of consumer spending and business investment suggests current interest rates may not be as restrictive as they would have been in the past.

Featured Image Credit: Photo by Kelly; Pexels

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