Fed Chair Powell Opens Door To Rate Cuts This Year, Downplays Recent Inflation Upticks: S&P 500 Rises To All-Time Highs

Fed Chair Jerome Powell indicated on Wednesday that the Fed is likely to cut rates at some point this year, although he acknowledged that the outlook is uncertain and that decisions will be made on a meeting-by-meeting basis.

During the March meeting, the Federal Reserve opted to maintain interest rates, aligning with previous indications of three anticipated rate reductions in 2024, consistent with projections from December 2023.

Participants revised their growth projections upwards, forecasting a median growth rate of 2.1% for the current year, compared to the previous estimate of 1.4%, and a steady 2% over the forecast horizon.

Powell suggested that the current policy rate may have peaked for this tightening cycle, signaling a possibility of easing policy later in the year if economic conditions evolve as expected.

However, as risks to economic projections persist, Powell recognized the potential consequences of adjusting policy too hastily or too slowly, offering a balanced perspective to rate cuts.

On one hand, the Fed is ready to maintain the current interest rate range, knowing that acting too soon or too aggressively could reverse progress and require tighter policies later.

On the other hand, delaying or insufficient action could harm economic activity and employment, emphasizing the need for timely and balanced policy adjustments.

Rate Cuts Will Come, Powell Just Needs A Bit Of More Confidence

Powell refrained from specifying the timing of rate cuts. “The committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving towards 2%,” he said. The chairman reiterated the Fed will make decisions meeting by meeting, and the board didn’t make any decisions about future meetings at the March meeting.

Addressing concerns about recent inflation data, Powell attributed the spikes partly to seasonal adjustments and underscored the Fed’s vigilance without conceding to inflation complacency fears.

“The February number was high, but not terribly high,” he added.

Powell emphasized that significant deterioration in economic indicators, particularly in the labor market, could prompt the Fed to initiate rate reductions.

Responding to inquiries about the upward revision of the longer-term interest rate projection, Powell cited lingering uncertainties but expressed confidence that rates would not regress to pre-pandemic levels.

Regarding the balance sheet, Powell hinted at ongoing discussions about slowing the pace of asset holdings decline, suggesting a potential commencement of runoff in the near future.

Market Reactions

• The S&P 500 index rose past 5,200 points during Powell press conference, reaching fresh all-time highs. The SPDR S&P 500 ETF Trust SPY was 0.9% higher at 03:21 p.m. ET.
• Tech-heavy Nasdaq 100, as tracked by the Invesco QQQ Trust QQQ rose 1%.
• Treasury yields were flat across the board, with the iShares 20+ Year Treasury Bond ETF TLT unchanged for the day.
• Gold rallied 1.2%, with the precious metal breaking above $2,180/oz. The SPDR Gold Trust GLD rose 1.1%.

Chart of The Day: S&P 500 Hit Fresh Record Highs During Powell’s Speech

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Image created using artificial intelligence with Midjourney.