Fed Pauses, Offers Guidance On Rate Cuts

As expected, the Fed paused in January. The Fed’s Press Release said little.

Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent.

In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee 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 last sentence summarizes the Fed’s stance. It was the subject of numerous questions at the press conference.

Press Conference

Press Conference Highlights

Fed Chair Jerome Powell says “We need some confirmation”, that inflation is coming down before it cuts rates.

Powell says the Fed does not know the “neutral rate.” That’s defined as the interest rate that is neither loose nor restrictive. The timing of cuts will depend of data.

“Core inflation is still well above target on a 12-month basis. We are not declaring victory at all at this point,” said Powell. The Fed does not think inflation will head back up, while admitting it’s possible.

“It’s a good labor market.” Unemployment has been below 4.0 percent for the “longest period in 50 years.”

“The Committee Intends to move carefully,” and the Fed is data dependent. “It depends on the economy. The Fed will react to the data.”

In one of his more accurate assessments “consumers are right to be unhappy [about inflation],” said Powell.

March Cut Not the Base Case

Starting at about the 1:30:40 mark in the above video link …

In the key moment at the press conference, Powell stated “Based on the meeting today, I would tell you that I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March is the time to do that.” 

A March cut is “probably not the most likely or what we could call the base case.”

ADP Reports an Increase of 107,000 Private Payrolls

The hiring slowdown of 2023 spilled into January, and pressure on wages continues to ease. The pay premium for job-switchers shrank to a new low last month.

(Click on image to enlarge)

On the jobs front, ADP Reports an Increase of 107,000 Private Payrolls, BLS Reports Friday

ADP reports the premium for job switching is dropping rapidly. That show up in the huge slide in quits.

In advance, I commented Job Openings Rise in December But Quits Tell the Real Story

Meanwhile, the Fed wants more data.

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