MNI FED WATCH: Slowly Pivoting To Cuts, Unlikely In March

The Federal Reserve Wednesday held interest rates at a 23-year high range of 5.25%-5.5% for a fourth straight meeting and shifted its forward guidance to a more neutral tone, but Chair Jay Powell said rate cuts likely aren’t imminent.

"Based on the meeting today, I would tell you that I don't think it is likely that the Committee will reach a level of confidence by the time of the March meeting to identify March at as the time to" cut rates, Powell told reporters in a post-meeting press conference. "It is probably not the most likely case," he said about March, sending stocks to their worst day in months. Markets are pricing in a 25 basis point cut in May and a total of 143 basis points by the end of the year.

Still, Powell sounded more certain that future rate hikes are unlikely and the Fed will be cutting rates at some point in 2024. "We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year," he said. (See MNI INTERVIEW: Ex-Fed's Lockhart Sees Not Rush To Cut In H1)

SUSTAINABLY TOWARD 2%

The Fed chair spoke of the risks of brining interest down too soon or too early and how that could halt the progress on inflation, but also acknowledged the risks of waiting too long could unduly weaken economic activity and employment.

The Federal Open Market Committee in its post-meeting statement released Wednesday said risks to achieving employment and inflation goals are moving into better balance. The FOMC also said it will be appropriate to reduce the fed funds rate range once it has gained greater confidence that inflation is moving sustainably toward 2%.

"It is a question of can we take that with confidence that we are moving sustainably on to 2%. That is what we are thinking about," Powell said. "We need to see more. That is where we are at a Committee."

The Fed is encouraged by recent inflation progress and the labor market remains strong, but a soft landing is not guaranteed, Powell said. "We are not declaring victory at all at this point. We think we have a ways to go," he said. "We are not looking for a weaker labor market but for inflation to continue to come down as it has been the last six months."

Powell also said the pace of rate cuts will "really depend on how the economy evolves," suggesting the December Summary of Economic Projections is a good indication of officials' views.

QT DISCUSSIONS IN MARCH

The Fed is getting closer to having a discussion about the pace of which its assets have been rolling off its balance sheet, Powell said.

"We are planning to begin in-depth discussions of balance sheet issues at our next meeting in March," he said. "Questions are beginning to come into greater focus about the pace of runoff."(See MNI: Fed Could Soon Taper QT But Halt Further Off-Ex Staffers)