Fed to begin rate cut discussions but avoid teeing first one up
Federal Open Market Committee is widely expected to hold interest rates steady for the fourth straight meeting when it gathers in Washington on Jan. 30 and 31. The real focus though will be on what lies ahead, at the FOMC’s March meeting and beyond.
Policymakers have recently suggested they’re ready to begin discussing the broad parameters for lowering rates after giving the subject only a passing nod at their last meeting in December. Several have also indicated a willingness to entertain rate cuts in the first half of 2024 if inflation falls faster than expected. But officials haven’t given any sign they plan to use their upcoming gathering to tee up a rate cut for March – although that doesn’t preclude one from happening in response to economic shifts between now and then.
San Francisco Fed President Mary Daly on Friday said it’s “premature" to think interest-rate cuts are around the corner, noting she needs to see more evidence that inflation is on a consistent trajectory back to 2% before easing policy. "The Fed can be patient," said Morgan Stanley chief US economist Ellen Zentner, who expects the first rate cut to come in June. Powell and his colleagues can take their time because they won’t be cutting rates to counteract an economic contraction — as has often occurred in the past.
Instead, they will be calibrating policy to reflect a surprisingly steep drop in inflation from a multidecade high 1-1/2 years ago. “With economic activity and labor markets in good shape and inflation coming down gradually to 2%, I see no reason to move as quickly or cut as rapidly as in the past," Fed Governor Christopher Waller told the Brookings Institution on Jan. 16.
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