MNI Fed Review: Jan 2024: Powell Sets High Bar To March Cut

We've just published our review of the January 30-31 FOMC meeting - emailed to clients and available in PDF here.

• The January FOMC meeting formally put an end to the tightening bias which had persisted for 16 meetings, shifting to a more neutral stance as it held rates for the 5th time in 6 meetings.
• But those were unsurprising outcomes - our preview indicated that the main question for this meeting would be the degree to which the FOMC kept the door open to a rate cut as soon as March. MNI had expected the Committee to be wary of signaling a March cut, instead re-emphasizing a patient approach, with the 50% market-implied probability for a March reduction looking too high.
• In that regard, the main headline from the January FOMC was that Chair Powell appeared to come into the press conference deliberately intending to push back against expectations that the FOMC would make its first cut in March.
• Powell didn’t rule out a March cut – but he set a high bar, implying that it would require significant surprises in the “totality” of the data between now and then for them to ease.
• Markets responded accordingly by pricing out a March cut from the 50/50% implied probability entering the meeting, and analysts pushed back their expectation for the first cut by one or two meetings, with May now looking like the central case. However, the total easing expected in 2024 didn’t change much (still 140+bp), mirroring Powell’s optimism on the disinflation outlook while being wary of pulling the trigger too early.