Overnight we got the latest decision from the US Federal Open Market Committee keeping its benchmark federal funds rate steady for the second straight meeting, in a target range of 4.25%-4.5%.
But in the subsequent press conference, where Fed Chair Jerome Powell seemed to be tip-toeing through a potential minefield, he said the committee had down forecast growth, increased inflation expectations, and said the full impact of tariffs had yet to work though. And while the FOMC did slow the pace of balance-sheet runoff — their updated forecasts and dot plot betrayed little concern about the growth scare that has gripped markets. More rate cuts are expected, perhaps two though the year, despite the higher inflation and lower growth.
Significantly though he dusted off the old “transitory” moniker again, which you will recall was used through the early phase of the strong inflationary pulse we saw post COVID. It was then dispatched to the dustbin of stupid and unhelpful terms, that is until it was resurrected in the press conference. Seeing as they got it so wrong last time, was it wise to do that, as I am not sure it will help their credibility this time around.
Incidentally, because the Fed will also start shrinking its balance sheet at a slower pace starting in April, meaning it will reduce the amount of bond holdings it lets roll off every month that is a quasi rate cut, without being a rate cut. Again, this is engineering a watch and wait period, for the FED, and perhaps the possibility of the real rate cut will be clearer by the Northern Summer.
So this was a do not harm press conference, but I suspect despite wanting to calm the markets, and avoid tripping over Trump, the truth is the data-dependent FED is itself unsure of future trajectory. Which may not bode well for the rest of us!
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